2011 (12) TMI 350 - AT - Income Tax

Complex tax issues resolved in mixed outcomes on deductions, interest computation, and refunds.

The case involved various issues including the exclusion of rental income, interest income, and management fees in computing profits for deduction under ... Deduction u/s 80HHC - assessee has entered into an agreement with the Yanbu Cement Company Ltd to offer technical knowhow for the operation, maintenance and efficient working of their cement plants - It is the claim of the assessee that the receipt is nothing but income arising in the course of main business, hence to be considered as 'profits of the business' for the purpose of deduction under section 80HHC - Even though the assessee claims that it is operational income to be considered as 'profits of business', these receipts have no direct relationship with the assessee's claim under section 80HHC on export of goods - Considering that assessee originally excluded the same and only contested before the ITAT as additional ground - Decided against the assessee Regarding deduction u/s 80I - assessee included miscellaneous receipts as profit and gains of business while computing deduction under section 80I in respect of Madukarai Unit - learned counsel fairly submitted that the assessee was not in a position to correlate the amounts received as rent from outside parties as recovery of the amounts paid and other receipts, details of which are not available at present - Assessee could not relate the receipt of the above income to the industrial unit for claim of deduction under section 80I - Decided against the assessee Issues Involved:1. Exclusion of rental income, interest income, and management fees in computing profits for deduction under section 80HHC.2. Exclusion of miscellaneous receipts from profits and gains in computing deduction under section 80I.3. Error in computation of interest under section 244A.4. Non-grant of interest under section 244A on refund arising due to additional grounds taken before ITAT.5. Non-allowance of claim on road transport subsidy.6. Non-exclusion of profits on the sale of fixed assets from book profits under section 115J.7. Addition of provision of interest on income tax to book profit under section 115J.8. Denial of deduction under section 80HHC on the basis of book profit under section 115J.9. Exclusion of miscellaneous receipts from profits and gains in computing deduction under section 80HHC.10. Exclusion of sale of machinery in computing 'total turnover' for the purpose of deduction under section 80HHC.Detailed Analysis:Issue 1: Exclusion of Rental Income, Interest Income, and Management Fees in Computing Profits for Deduction Under Section 80HHC1.0 This issue was raised for assessment years 1992-93, 1993-94, 1994-95, and 1996-97. The contention was regarding the exclusion of rental income, interest income, and management fees from profits of business under Section 80HHC.1.1 The assessee did not press the issue regarding exclusion of rental income and interest income, treating it as withdrawn.1.2 The issue of management fees was examined. The assessee claimed that the management fees received from Yanbu Cement Company Ltd should be considered as 'profits of the business' for deduction under Section 80HHC. However, the Assessing Officer and CIT (A) found that these receipts had no direct relationship with the assessee's claim under Section 80HHC on export of goods and treated them as non-operational income to be excluded at 90% under Section 80HHC Explanation (baa).1.3 The Tribunal upheld the orders of the Assessing Officer and CIT (A), rejecting the assessee's ground.1.4 Result: All respective grounds on this issue were rejected.Issue 2: Exclusion of Miscellaneous Receipts from Profits and Gains in Computing Deduction Under Section 80I2.1 This issue was raised for assessment year 1996-97. The assessee included miscellaneous receipts as profit and gains of business while computing deduction under Section 80I. The Assessing Officer disallowed the deduction, but CIT (A) allowed it for certain amounts. The ITAT restored the matter to the Assessing Officer.2.2 The Assessing Officer found that the receipts did not have a direct nexus with the industrial undertaking and disallowed the claim. The CIT (A) allowed certain amounts but not others.2.3 The Tribunal confirmed the action of the Assessing Officer, dismissing the assessee's claim on the basis that the receipts could not be correlated to the industrial undertaking.2.4 Result: The ground on this issue was dismissed.Issue 3: Error in Computation of Interest Under Section 244A3.1 This issue was raised in multiple assessment years. The assessee was aggrieved by the method of calculating interest on the refund under Section 244A, arguing that it should be calculated on the tax refund without reducing the interest granted earlier.3.2 The Tribunal followed the decision in Abudhabi Commercial Bank Ltd vs. DCIT, directing the Assessing Officer to recalculate the interest under Section 244A without reducing the interest already granted.3.3 Result: The respective grounds were considered allowed.Issue 4: Non-Grant of Interest Under Section 244A on Refund Arising Due to Additional Grounds Taken Before ITAT4.1 This issue arose in multiple assessment years. The assessee claimed that interest under Section 244A was not allowed on refunds due to additional grounds taken before the ITAT.4.2 The Tribunal noted that the Assessing Officer did not follow Section 244A(2) correctly, as the matter should have been referred to the Chief Commissioner or CIT. It directed the Assessing Officer to rework the interest under Section 244A(1) r.w.s. 244A(3).4.3 Result: The respective grounds were considered allowed.Issue 5: Non-Allowance of Claim on Road Transport Subsidy6.0 This issue was raised for assessment year 1990-91. The assessee received road transport subsidy under the Transport Subsidy Scheme 1971, which the Assessing Officer did not grant relief for, but CIT (A) decided in favor of the assessee.6.1 The Tribunal upheld the CIT (A)'s decision, noting that similar claims had been decided in favor of the assessee in other years.6.2 Result: Revenue ground was rejected.Issue 6: Non-Exclusion of Profits on Sale of Fixed Assets from Book Profits Under Section 115J7.0 This issue was raised for assessment year 1990-91. The assessee claimed exclusion of sale of fixed assets in computing book profit, which the Assessing Officer did not grant, but CIT (A) allowed.7.2 The Tribunal, following the decision in Rain Commodities Ltd vs. DCIT and CIT vs. Veekaylal Investment C.(P) Ltd, decided in favor of the Revenue.7.3 Result: The order of the CIT (A) was modified, and the Assessing Officer's order was restored.Issue 7: Addition of Provision of Interest on Income Tax to Book Profit Under Section 115J8.0 This issue was raised for assessment year 1990-91. The Assessing Officer added the provision of interest on income tax to book profit, which CIT (A) excluded.8.2 The Tribunal upheld CIT (A)'s decision, following the Kerala High Court decision in CIT vs. Fertilizer and Chemicals Travancore Ltd.8.3 Result: The ground was rejected.Issue 8: Denial of Deduction Under Section 80HHC on the Basis of Book Profit Under Section 115J9.0 This issue was raised for assessment year 1990-91. The assessee claimed deduction under Section 80HHC computed on the basis of book profit, which the Assessing Officer did not grant, but CIT (A) allowed.9.3 The Tribunal upheld CIT (A)'s decision, following the Supreme Court decision in Ajanta Pharma.9.4 Result: The ground of the Revenue was dismissed.Issue 9: Exclusion of Miscellaneous Receipts from Profits and Gains in Computing Deduction Under Section 80HHC10.0 This issue was raised for assessment year 1991-92. The Assessing Officer did not include certain miscellaneous receipts in the profits of the industrial undertaking, but CIT (A) directed the inclusion.10.2 The Tribunal reversed CIT (A)'s directions, upholding the Assessing Officer's order.10.3 Result: The ground was allowed.Issue 10: Exclusion of Sale of Machinery in Computing 'Total Turnover' for the Purpose of Deduction Under Section 80HHC11.0 This issue was raised for assessment year 1991-92. The Assessing Officer did not exclude the sale of machinery from total turnover, but CIT (A) directed the exclusion.11.2 The Tribunal upheld CIT (A)'s decision, following the Supreme Court decision in CIT vs. Lakshmi Machine Works.11.3 Result: The ground was rejected.Final Outcome:- Assessee's appeals in AY 1990-91 and AY 1991-92 were allowed.- Assessee's appeals in AY 1992-93, AY 1993-94, AY 1994-95, and AY 1996-97 were partly allowed.- Revenue appeals were partly allowed.