2011 (2) TMI 330 - HC - Income Tax

Appeals dismissed: Job-work receipts qualify under s.80-IB; business-use assets and plant depreciation allowed; dividend income exempt

HC dismissed the appeals. The court held the assessee's job-work receipts fell within eligible business under s.80-IB and affirmed the Tribunal's view; ... Deduction u/s 80IB - labor job receipts - income not ‘derived from’ the eligible business of industrial undertaking of the assessee company - HELD THAT:- Assessee admittedly did the job work qualifying as eligible business under section 80-IB. On the said issue, view taken by the Tribunal earlier was upheld by this Court vide judgment in case of CIT v. Impel Forge & Allied Industries Ltd.[2008 (12) TMI 370 - PUNJAB & HARYANA HIGH COURT]. The view taken by the Tribunal being consistent with the earlier view taken by this Court, the said question cannot be held to be substantial question of law. Miscellaneous receipts from rebate, discount and balances written off are incidental to the profits and gains derived from eligible business under section 80-IB. The air conditioners though purchased in the name of the Managing Director and his wife are for the assessee and were to be used for the business of the assessee and not for personal use of the Managing Director or his wife. Depreciation was, thus, admissible thereon. Electrical installations were part of plant and machinery and even for the earlier years, the depreciation were allowed. Dividend income was statutorily exempt. Mere omission to claim the said exemption in the return could not debar the assessee from claiming the same. Judgment of Hon’ble Supreme Court in Goetze (India) Ltd. v. CIT [2006 (3) TMI 75 - SUPREME COURT], was not applicable to such exemption as rightly held by the Tribunal. Accordingly, no substantial question of law arises. Appeals are dismissed. Issues Involved:1. Deduction under section 80-IB on labor job receipts.2. Deduction under section 80-IB on miscellaneous income.3. Depreciation on assets not owned by the assessee.4. Depreciation rate on electrical installations.5. Exemption of dividend income not claimed in the return.6. Writing off the cost of tools and dies.7. Treatment of designing and consultancy charges as revenue or capital expenditure.8. Disallowance under section 14A for presumed expenditure on exempt income.Issue-wise Detailed Analysis:1. Deduction under section 80-IB on labor job receipts:The Tribunal affirmed the CIT(A)'s finding that job work income was earned by the assessee through manufacturing activities for outside parties, similar to those for its own products. This income was considered derived from eligible business under section 80-IB. The Tribunal referenced the Delhi High Court's decision in Northern Aromatics Ltd. and the Madras High Court's decision in CIT v. Taj Fire Works Industries, supporting the eligibility of such income for deduction.2. Deduction under section 80-IB on miscellaneous income:The CIT(A) held that miscellaneous receipts, rebate, discount, and balances written off were derived from the industrial undertaking, thus qualifying for deduction under section 80-IB. The Tribunal upheld this view due to the absence of adverse material and the smallness of the dispute.3. Depreciation on assets not owned by the assessee:The Tribunal upheld the CIT(A)'s decision allowing depreciation on air conditioners purchased in the name of the Managing Director and his wife, as they were acquired with the assessee's funds and used for business purposes. The beneficial owner was the assessee, not the individuals.4. Depreciation rate on electrical installations:The Tribunal confirmed the CIT(A)'s decision to allow depreciation at 25% on electrical installations, treating them as part of plant and machinery. This was consistent with the treatment in the previous assessment year.5. Exemption of dividend income not claimed in the return:The Tribunal found that the CIT(A) was correct in allowing the exemption under section 10(35) despite it not being claimed in the return. The Supreme Court's decision in Goetze (India) Ltd. v. CIT did not apply to statutory exemptions. The jurisdictional High Court's decision in CIT v. Rewari Central Cooperative Bank Ltd. supported this view.6. Writing off the cost of tools and dies:The Tribunal upheld the CIT(A)'s decision allowing the assessee to write off 80% of the cost of tools and dies, consistent with the method followed in previous years. Tools and dies lost resale value once used, justifying the write-off.7. Treatment of designing and consultancy charges as revenue or capital expenditure:The Tribunal agreed with the CIT(A) that designing and consultancy charges related to tools and dies were revenue expenditures. These expenses were incurred in the course of business and did not lose their revenue character.8. Disallowance under section 14A for presumed expenditure on exempt income:The Tribunal upheld the CIT(A)'s decision that disallowance under section 14A was not justified without evidence of actual expenditure incurred to earn exempt income. The jurisdictional High Court's decision in Hero Cycles Ltd. supported this view, rejecting presumptive expenditure.Conclusion:The High Court dismissed both appeals, finding no substantial questions of law. The Tribunal's decisions were consistent with earlier judgments and the principles of consistency, affirming the CIT(A)'s findings on all issues.