2015 (1) TMI 194 - HC - Income Tax

High Court rules on tax issues favoring assessee including income taxability, revenue expenditure, deductions, interest set off.

UNITED PHOSPHOROUS LIMITED Versus JT. COMMISSIONER OF INCOME TAX

The High Court ruled in favor of the assessee on various tax issues, including the taxability of income from Advance License Benefit Receivable and the ... Determination of taxable year – Taxable in year under consideration or in subsequent years - Income from Advance License Benefit Receivable, income from Pass Book scheme – Held that:- Following the decision in Commissioner of Income Tax Versus M/s Excel Industries Ltd. and Mafatlal Industries P. Ltd. [2013 (10) TMI 324 - SUPREME COURT] wherein, it is held that income from sale of Advance License Benefits is taxable only in the year in which actual sale took place – Decided in favour of assessee. Premium paid for the leasehold land – Revenue expenses or not – Held that:- Following the decision in Deputy Commissioner of Income-tax v. Sun Pharmaceuticals Ind. Ltd., [2009 (3) TMI 587 - Gujarat High Court] wherein it has been held that merely because the deed was registered, the transaction would not assume a different character - the lease rent was very nominal and by obtaining the land on lease, the capital structure of the assessee did not undergo any change - the assessee only acquired a facility to carry on business profitably by paying nominal lease rent and that the lease rent paid by the assessee to GIDC was allowable as revenue expenditure – Decided in favour of assessee. Allowability of deduction u/s 80M – Deduction of management expenses from gross dividend received – Expenses incurred by assessee or not – Held that:- However, the assessee has not shown any management expenditure or office expenditure, which was necessary for earning dividend – in CIT v. United General Trust Ltd. [1993 (2) TMI 96 - SUPREME Court] it has been held that relief u/s 80M must be allowed on net dividend after deducting proportionate management expenditure – Decided in favour of assessee. Calculation of deduction u/s 80HHC - Set off of expenditure against income – Held that:- Following the decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income tax, [2012 (2) TMI 101 - SUPREME COURT OF INDIA] wherein it has been held that for the purpose of Section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit but, the sale value less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee – Decided in favour of assessee. Levy of interest u/s 234B remit back by the Tribunal – Held that:- The Tribunal relied upon CIT v. Ranchi Club Ltd. [2000 (8) TMI 79 - SUPREME Court] wherein, it was held that in the absence of any specific mention by the assessing authority in the assessment order in respect of charging interest u/s.234A and 234B, no interest could be recovered merely by way of demand notice - however, subsequently, by Finance Act, 2001, Sections 140A and 234A/B were amended retrospectively with effect from 01.04.1989 - the Tribunal remitted the matter to the AO for fresh decision - the view taken by the Tribunal is just and appropriate considering the amendment of Section 234A/B – Decided in favour of assessee. Issues involved:1. Taxability of income from Advance License Benefit Receivable (ALBR)2. Taxability of income from the Pass Book Scheme3. Allowance of premium of leasehold land on a proportionate basis4. Deduction under section 80M without incurring management expenses5. Set off of interest expenditure against interest income for deduction under section 80HHC6. Levy of interest under section 234B of the ActAnalysis:1. Taxability of ALBR income:The High Court referred to the decision in Commissioner of Income tax v. Excel Industries Ltd., [2013] 358 ITR 295, which established that hypothetical income does not fall under Section 28(iv) of the Act. Consequently, the Court ruled in favor of the assessee, stating that if real business income had not accrued, the provisions of Section 28(iv) would not be applicable.2. Taxability of Pass Book Scheme income:Following the same principle as the ALBR income issue, the Court resolved this matter in favor of the assessee based on the decision in Commissioner of Income tax v. Excel Industries Ltd., [2013] 358 ITR 295, which distinguished between real business income and hypothetical income.3. Allowance of premium of leasehold land:The Court relied on the decision in Deputy Commissioner of Incometax v. Sun Pharmaceuticals Ind. Ltd., [2010] 329 ITR 479 (Guj) to determine that the lease rent paid by the assessee was allowable as revenue expenditure. It was clarified that the transaction did not change the capital structure of the assessee, leading to a ruling in favor of the assessee.4. Deduction under section 80M:In the absence of management expenses shown by the assessee, the Court referred to the cases of CIT v. United General Trust Ltd., 200 ITR 488, and Distributor, Vadodara Pvt. Ltd. v. Union of India, 156 ITR 120, to establish that relief under section 80M should be allowed on the net dividend after deducting management expenditure. Consequently, the Court ruled in favor of the assessee.5. Set off of interest expenditure for section 80HHC deduction:Citing the decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Incometax, [2012] 343 ITR 89 (SC), the Court clarified that for Section 80HHC, the profit on the transfer of DEPB credit should be calculated as the sale value less the face value of the DEPB. This led to a ruling in favor of the assessee regarding the set off of interest expenditure against interest income.6. Levy of interest under section 234B:The Court considered the amendment of Sections 140A and 234A/B by the Finance Act, 2001, with retrospective effect from 01.04.1989. Relying on the decision in CIT v. Ranchi Club Ltd., 164 CTR 200, the Court upheld the Appellate Tribunal's decision to remit the matter to the assessing authority for fresh adjudication. This decision was deemed appropriate in light of the legislative amendments.In conclusion, the High Court disposed of the appeal, ruling in favor of the assessee on various issues based on legal precedents and interpretations of relevant sections of the Income Tax Act.