2015 (1) TMI 834 - HC - Income Tax

Court rules on deductibility of expenses, interest types, and depreciation under Income Tax Act

Commissioner of Income Tax Versus M/s. Kelvinator of India Ltd.

Commissioner of Income Tax Versus M/s. Kelvinator of India Ltd. - [2015] 371 ITR 51 (Del) Issues Involved:1. Deductibility of guest house expenses under Section 37(4) of the Income Tax Act.2. Consideration of interest on Fixed Deposit Receipts (FDR), miscellaneous receipts, and interest from customers for the purpose of Section 80-I.3. Deduction under Section 32AB based on the profits of the industrial undertaking.4. Depreciation on guest house expenses.5. Allowability of expenditure on rent and repairs of the guest house.6. Consideration of interest on debentures, loans, inter-corporate deposits, and dividend for computing deduction under Section 32AB.Detailed Analysis:1. Deductibility of Guest House Expenses under Section 37(4):The court addressed whether the Income Tax Appellate Tribunal (ITAT) was correct in deleting the addition of guest house expenses. It was noted that the Supreme Court in Britannia Industries Ltd. vs. CIT had already settled the issue, ruling in favor of the revenue. Thus, the guest house expenses were deemed disallowable under Section 37(4).2. Consideration of Interest for Section 80-I:The ITAT's decision to include interest on FDR, miscellaneous receipts, and interest from customers for Section 80-I was partially upheld. The court differentiated between the types of interest:- Interest from customers on delayed payments was considered business income and eligible for Section 80-I, as per CIT V. Advance Detergents Ltd. and CIT V. Jackson Engineers Ltd.- Interest on FDRs, bank guarantees, deposits, and miscellaneous receipts was not eligible for Section 80-I benefits, following CIT V. Shri Ram Honda Power Equipment. The matter was remanded to the Assessing Officer (AO) to allow netting of interest.3. Deduction under Section 32AB:The court examined whether the deduction under Section 32AB should be based on the profits of the industrial undertaking or the aggregate profit of the assessee. The court concluded that the deduction should be computed based on the profits of the eligible business units only, without aggregating losses from other units. This interpretation aligns with the legislative intent and previous rulings, including CIT vs. Canara Workshops (P) Ltd. and CIT vs. Pudumjee Agro Industries Ltd.4. Depreciation on Guest House Expenses:Similar to guest house expenses, the court ruled that depreciation on guest house expenses is disallowable under Section 37(4), consistent with the Supreme Court's decision in Britannia Industries Ltd. vs. CIT.5. Allowability of Expenditure on Rent and Repairs of Guest House:The court held that expenditure on rent and repairs of the guest house is disallowable under Section 37(4), following the same rationale applied to guest house expenses and depreciation.6. Consideration of Interest on Debentures, Loans, Inter-Corporate Deposits, and Dividend for Section 32AB:The court addressed whether these incomes should be included for computing deduction under Section 32AB. The ITAT had previously ruled in favor of the assessee, considering these incomes as part of business income. The court upheld this view, citing the Supreme Court's decision in Apollo Tyres Limited vs. CIT, which allowed such inclusions if they are part of the business operations. The court found no contrary evidence from the revenue to dispute the ITAT's findings.Conclusion:The court's judgment provided a detailed interpretation of the relevant sections of the Income Tax Act, aligning with established legal precedents. The issues were resolved by affirming the ITAT's decisions where applicable and remanding specific matters for further verification by the AO. The appeals were disposed of with no order as to costs.