2015 (6) TMI 704 - AT - Income Tax

Tribunal Decision: Deduction for Business Activities Upheld, Rental Income Treatment Confirmed

The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals. It upheld the denial of deduction under section 80IC for various ... Denial of deduction u/s 80IC in respect of 'Other Income' - Interest received on refund of excess recovery by HIMUDA, Award reed from Government, Interest on IT Refunds and Foreign Exchange Fluctuation - CIT(A) agreeing with the AO that the said income was not derived from the business of the eligible Undertaking - Held that:- While deciding appeal of the revenue upheld the order of Commissioner of Income Tax (Appeals) in allowing deduction under section 80IC of the Act on Miscellaneous Income, Insurance claim and income from sale of scrap. However, following the parity of reasoning as in the earlier year, we find no merit in the claim of the assessee vis-à-vis deduction under section 80IC of the Act in respect of the interest received from HIMUDA, interest on IT refunds and award received from Government. However, in respect of Foreign Exchange Fluctuation Gain we hold that the is directly linked to the business activity and consequently, the assessee is entitled to the claim of deduction under section 80IC of the Act. - Decided partly in favour of assessee. Allowing entire deduction under section 80I(C) which includes the income from Job Work and Other Income - Held that:- In view of the claim of the assessee being allowed from year to year we find no merit in the stand of the Assessing Officer in the present year in the absence of any change in the fact situation. We are in agreement with the order of the CIT (Appeals) in this regard. - Decided against revenue. Allowing the deduction u/s 80IC in respect of 'Job Work Income' - Held that:- Following the order of the Tribunal in the case of assessee itself in the earlier years relating to assessment years 2005-06 to 2008-09, we find no infirmity in the order of the CIT (Appeals)- Decided against revenue. Allowing the deduction u/s 80IC in respect of 'Other Income' accrued to the assessee on account of income like interest received from Housing Board, Interest income from IT Refund, miscellaneous income, insurance claim and income from sale of scrap etc. - Held that:- similar issue arose before the Tribunal in assessment years 2006-07 and 2008-09 and the claim of the assessee vis-à-vis deduction under section 80IC of the Act on the aforesaid income has been allowed to the assessee. Following the same we uphold the order of the CIT (Appeals). However, we find that the Commissioner of Income Tax (Appeals) had only allowed the claim of deduction under section 80IC of the Act on other income i.e. miscellaneous income, income from sale of scrap and insurance claim and not on the interest income received from Housing Board and IT refunds. The grounds of appeal raised by the revenue in this regard are thus misplaced and we uphold the order of Commissioner of Income Tax (Appeals) in allowing the claim of deduction under section 80IC of the Act on Miscellaneous income, insurance claim received and income from sale of scrap. - Decided against revenue. Disallowance u/s 24 (A) - CIT(A) deleted disallowance directing to treat receipts from M/s Hankel Teroson India Ltd., as rental income - Held that:- The income from letting out of premises in the case of the appellant has been assessed under the head 'income from house property' right from A.Y. 2003-04. Thus entirely in agreement with the Ld. Counsel for the appellant that sharing of common expenses has nothing to do with the letting out of the premises, since these two are different areas. The appellant has not been claiming depreciation on the said premises over the past so many years and for this reason also it would not be appropriate to disturb the head under which the impugned income should be assessed. The disallowance made by the Assessing Officer is accordingly deleted - Decided against revenue. Disallowance of expenditure incurred on laying down of PU coating on floor - Held that:- expenditure incurred on laying down of PU coating on floor which admittedly has a short life span and the same cannot be held to increase the life span of the building. We find no merit in the orders the authorities below and reversing the same, we hold that the expenditure incurred by the assessee is duly allowable as revenue expenditure - Decided in favour of assessee. Issues Involved:1. Denial of deduction under section 80IC on various incomes.2. Treatment of income from job work under section 80IC.3. Classification of certain expenses as capital or revenue expenditure.4. Treatment of rental income and related deductions.5. Deduction under section 80IC on interest income and miscellaneous income.Issue-wise Detailed Analysis:1. Denial of Deduction under Section 80IC on Various Incomes:The assessee contested the denial of deduction under section 80IC for 'Other Income' consisting of interest on refund from HIMUDA, government award, interest on IT refunds, and foreign exchange fluctuation gain. The CIT(A) and AO held that these incomes were not derived from the business of the eligible undertaking. The Tribunal upheld this view, referencing previous years' decisions, and concluded that such income was not directly linked to the business activities. However, the Tribunal allowed deduction on foreign exchange fluctuation gain, considering it directly linked to business activities.2. Treatment of Income from Job Work under Section 80IC:The revenue challenged the allowance of deduction under section 80IC on income from job work. The Tribunal referred to its earlier decisions from assessment years 2005-06 to 2008-09, where it was established that job work related to the manufacturing process and thus eligible for deduction. The Tribunal found no merit in the AO's stand and upheld the CIT(A)'s decision to allow the deduction.3. Classification of Certain Expenses as Capital or Revenue Expenditure:The assessee disputed the classification of expenditure on repairs and maintenance as capital expenditure. The Tribunal reviewed the nature of the expenses, specifically PU coating on the floor, which had a short life span and did not enhance the building's life. It concluded that such expenses should be treated as revenue expenditure and allowed the deduction.4. Treatment of Rental Income and Related Deductions:The revenue appealed against the treatment of receipts from leasing part of the factory building as rental income, arguing it was a business arrangement. The Tribunal noted that rental income had been consistently declared since assessment year 2003-04 and sharing of common expenses did not alter the nature of the income. It upheld the CIT(A)'s decision to treat the receipts as rental income and allowed the statutory deduction under section 24(a).5. Deduction under Section 80IC on Interest Income and Miscellaneous Income:The revenue and the assessee both raised issues regarding the deduction under section 80IC on various other incomes such as interest from Housing Board, IT refunds, and miscellaneous income. The Tribunal, following previous decisions, allowed the deduction on income from sale of scrap, insurance claims, and credit balances written off, but denied it for interest income and other miscellaneous incomes not directly linked to business activities.Conclusion:The Tribunal dismissed the revenue's appeals and partly allowed the assessee's appeals, maintaining consistency with previous years' decisions and legal principles regarding the deduction under section 80IC and classification of expenses. The Tribunal's detailed analysis ensured that deductions were allowed only for incomes and expenses directly linked to the business activities of the eligible undertaking.