2010 (9) TMI 784 - AT - Income Tax

Tribunal upholds AO's calculation method for deduction under section 80HHF, emphasizes statutory compliance and holistic tax approach.

The Tribunal upheld the Assessing Officer's method of proportionate calculation for deduction under section 80HHF, rejecting the separate treatment of ... Deduction u/s 80HHF - export profit - business of making television software and telecast on Doordarshan and other channels. - computation of deduction - held that:- profits computed under the head 'Profits and gains of business or profession' would include not only the profit from the business referred to in sub-section (1) but would also include the profit from other business activities - the profits derived from such business under section 80HHF are to be calculated by multiplying 'export turnover' with the 'profits of the business' as divided by the 'total turnover of the business'. 'The business' in the present context, means the composite business of the assessee of producing and purchasing TV serials and then earning income by way of their commercial exploitation whether from export or domestic market inter alia including that from slot charges. Deduction of unrealized foreign exchange from export turnover and total turnover - held that:- The figures of export turnover and total turnover play pivotal role in such calculation. - it would be just and fair if the impugned order is set aside on this issue and the matter is sent back to the Assessing Officer for deciding the amount includible in the figures of total and export turnover out of the export debtors as at the end of the year as per law. Thereafter the Assessing Officer will re-compute the amount of relief under section 80HHF in accordance with our above directions after allowing a reasonable opportunity of being heard to the assessee.Depreciation on office premises - occupation through purchase of shares purchase of shares and construction contribution - held that:- payments are aimed at acquiring, using and occupying the property. But for the purchase of shares it is not permissible to become member. In the like manner paying construction contribution is also a pre-requisite for becoming the member of WRPL. Unless any person desirous of obtaining, using and occupying the property purchases shares and makes contribution towards construction, he cannot become the member of the company. Both the payments are directed towards acquiring one composite right. As such it is not possible to view these two payments separately and consider the construction contribution as part of block of asset leaving aside the consideration for shares. We, therefore, hold that by making total payment of Rs. 4.44 crores the assessee became entitled to obtain use and occupy the requisite premises and hence became owner of the premises for the purpose of section 32(1). - Claim of depreciation allowed. Issues Involved:1. Computation of deduction under section 80HHF.2. Inclusion of unrealized export turnover in total turnover.3. Allowance of depreciation on office premises.4. Charging of interest under sections 234B and 234C.Detailed Analysis:1. Computation of Deduction under Section 80HHF:The primary issue revolves around the computation of the deduction under section 80HHF. The assessee, engaged in the business of making television software, claimed a deduction of Rs. 11.53 crores under section 80HHF as export profits. The Assessing Officer (AO) observed discrepancies between the total turnover and the export turnover figures provided by the assessee. The AO proposed a proportionate calculation of the deduction, which significantly reduced the claim to Rs. 2.86 crores. The assessee contended that the export business was distinct and maintained separate books of account, thus deserving the entire claimed deduction. The Commissioner of Income-tax (Appeals) [CIT(A)] sided with the assessee, allowing a deduction of Rs. 10.52 crores based on the separate books of account and allocation of indirect expenses. However, the Tribunal upheld the AO's method, emphasizing that the business of producing and purchasing TV serials, whether for export or domestic market, constituted a single composite business. The Tribunal clarified that the computation of deduction under section 80HHF must follow the formula provided in subsection (3), involving the proportionate calculation based on total turnover, rejecting the notion of treating the export business as separate.2. Inclusion of Unrealized Export Turnover in Total Turnover:The AO excluded Rs. 4.45 crores from the export and total turnover, representing unrealized export debtors without RBI certification for extension. The CIT(A) included Rs. 4.41 crores in the total turnover based on additional evidence provided by the assessee. The Tribunal remanded this issue back to the AO for re-evaluation, directing a fresh examination of the includible amount in the export and total turnover as per law, ensuring a fair opportunity for the assessee to present their case.3. Allowance of Depreciation on Office Premises:The assessee claimed depreciation on office premises acquired from WRPL, which included payments for shares and construction contribution. The AO disallowed the depreciation, treating the premises as stock-in-trade of WRPL. The CIT(A) allowed depreciation on the construction contribution but not on the share consideration. The Tribunal, however, concluded that the total payment of Rs. 4.44 crores (including shares and construction contribution) was aimed at acquiring, using, and occupying the premises, thus entitling the assessee to depreciation on the entire amount. The Tribunal emphasized that the assessee's right to use and occupy the premises, akin to ownership, justified the depreciation claim under section 32(1).4. Charging of Interest under Sections 234B and 234C:The issue of charging interest under sections 234B and 234C was deemed consequential and disposed of accordingly, depending on the final tax liability after the re-computation of deductions and adjustments as directed by the Tribunal.Conclusion:The Tribunal's judgment provided a detailed analysis of the computation of deductions under section 80HHF, emphasizing the need for proportionate calculation based on total turnover. It also addressed the inclusion of unrealized export turnover, allowing for a re-evaluation by the AO. The Tribunal granted depreciation on the entire amount paid for office premises, recognizing the assessee's right to use and occupy the premises. The issue of interest under sections 234B and 234C was treated as consequential. The judgment underscores the importance of adhering to statutory provisions and the holistic view of business activities in tax computations.