2015 (1) TMI 196 - HC - Income Tax

High Court Decisions on Tax Issues: Income Tax, Deductions, Business Loss, and Eligibility

UNITED PHOSPHORUS LTD. Versus ADDI. CIT

The High Court ruled in favor of the assessee on issues related to the taxability of income from Advance License Benefit Receivable and Pass Book scheme, ... 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 [2015 (1) TMI 194 - GUJARAT HIGH COURT] wherein 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 business loss suffered in China – Held that:- Since, it is an admitted position that the assessee has got decree of a foreign court in his favour, and therefore, there being a possibility of realizing the amount in near future, the Tribunal was justified in holding that business loss suffered by the appellant in China is not allowable in the year under consideration – Decided against assessee. Eligibility for deduction u/s 80I and 80IA - Income from Advance License Benefit Receivable, Pass Book Benefit Receivable and profit on sale of import license is not derived from industrial undertaking – Held that:- Following the decision in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] wherein it has been held that DEPB / Duty drawback are incentives which flow from the schemes framed by the Central Government or from Section 75 of the Customs Act, 1962 - Incentive profits are not profits derived from eligible business u/s 80I-B - they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB / Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression 'profits derived from industrial undertaking' under section 80-IB' – Decided against assessee. Calculation of deduction u/s 80HHC - Set off of expenditure against income – Held that:- Following the decision in [2015 (1) TMI 194 - GUJARAT HIGH COURT] wherein the decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income tax, [2012 (2) TMI 101 - SUPREME COURT OF INDIA] followed and 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. Allowability of deduction u/s 80M – Deduction of management expenses from gross dividend received – Expenses incurred by assessee or not – Held that:- Unless there is a finding that the assessee has actually incurred expenditure to earn dividend income, the Revenue has no basis to reduce the amount of dividend, which would qualify for deduction u/s 80M - when no expenditure are shown to have been incurred by the assessee for earning gross dividend income, deduction u/s 80M of the Act cannot be curtailed to reduce the amount qualifying for claim of deduction u/s 80M of the Act by assuming the amount of expenditure, which is assumed to have incurred by the assessee – Decided in favour of assessee. Issues:1. Taxability of income from Advance License Benefit Receivable.2. Taxability of income from Pass Book scheme.3. Treatment of premium paid for leasehold land as revenue expenditure.4. Allowance of premium of leasehold land on a proportionate basis.5. Allowability of business loss suffered in China.6. Eligibility of income from certain sources for deductions under sections 80I and 80IA.7. Set off of expenditure against income for calculating deduction under section 80HHC.8. Deduction under section 80M based on management expenses deduction.Analysis:1. The High Court addressed the taxability of income from Advance License Benefit Receivable and Pass Book scheme. Referring to a Supreme Court decision, the Court held that income from the sale of such benefits is taxable only in the year of actual sale. The Court ruled in favor of the assessee on this issue.2. The Court considered the treatment of premium paid for leasehold land as revenue expenditure. Citing a previous decision, the Court concluded that the lease rent paid was allowable as revenue expenditure. Consequently, the Court ruled in favor of the assessee on this matter, which also impacted the following issue.3. The issue of allowing the premium of leasehold land on a proportionate basis was discussed. Since the previous issue was decided in favor of the assessee, this question was deemed redundant and not answered separately.4. The Court deliberated on the business loss suffered in China. Despite the foreign court decree in favor of the assessee, the Court noted the possibility of recovering the amount in the future and upheld the Tribunal's decision that the loss was not allowable in the year under consideration, ruling in favor of the Revenue.5. Regarding the eligibility of certain income sources for deductions under sections 80I and 80IA, the Court referred to a Supreme Court judgment. The Court agreed with the Revenue that the income from such sources did not qualify for the deductions, ruling in favor of the Revenue.6. The Court examined the set-off of expenditure against income for calculating deduction under section 80HHC. Following a Supreme Court decision, the Court ruled in favor of the assessee, allowing the deduction based on the sale value less the face value of the DEPB credit.7. The deduction under section 80M, based on management expenses deduction, was discussed. The Court emphasized that unless actual expenditure was incurred, the Revenue could not reduce the deduction under section 80M. Relying on judgments from various High Courts, the Court ruled in favor of the assessee on this issue.In conclusion, the Court partially allowed the appeal, ruling in favor of the assessee on issues related to taxability of certain incomes, treatment of premium paid for leasehold land, set-off of expenditure for deductions, and deduction under section 80M. The Revenue succeeded on matters concerning business loss in China and the eligibility of income sources for specific deductions.