2018 (12) TMI 1623 - AT - Income Tax

Director's wife foreign travel expenses allowed 50% deduction; convertible bond premium deductible in payment year

ITAT Chandigarh upheld CIT(A)'s classification of interest income, allowing netting of related interest expenditure against income from other sources ... Interest income - correct head of income - Income from other sources or Income from Business and Profession - HELD THAT:- No infirmity in the order of the CIT(A) so far as the treatment of the interest from customers and suppliers as ‘business income’ and interest from bank and other sources as ‘income from other sources’ is concerned. However, a contention has been raised by the Ld. Counsel for the assessee that where there is a direct nexus between the interest income earned and the interest expenditure incurred in this respect, the assessee should be allowed netting of the same before computing the same under the head ‘income from other sources’. We find merit in the above contention of the assessee Allowability of dedction of other income u/s 10B, 80IB and 80IC - rent, Misc. receipts, DEPB, commission brokerage of ocean freight and interest income as ‘other income’ - brokerage of ocean freight is nothing but refund / rebate out of the freight expenditure - HELD THAT:- Assessee has fairly agreed that except the brokerage from ocean freight, the other items do not constitute income derived from undertaking. Assessing officer is directed to consider the rebate on ocean freight as income of the undertaking of the assessee. Adjustment of Head office expenses for computation of deductions u/s 10B, 80IC and 80IB - HELD THAT:- CIT(A) while holding so above, however, has directed the Assessing officer to allocate the net Head office expenses and not the gross net expenditure. We do not find any infirmity in the order of the CIT(A) on the issue and the same is accordingly upheld. Taxing the amount received on sale tax exemption / subsidy - revenue or capital receipt - HELD THAT:- The issue is now covered by the various decisions of the Hon'ble High Courts including the decision of the Hon'ble Supreme Court in ‘CIT-I Vs. M/s Chaphalkar Brothers, Pune and Others’ [2017 (12) TMI 816 - SUPREME COURT] wherein, it has been held that the aforesaid receipt is a capital receipt and not exigible to taxation. We hold accordingly and the lower authorities are directed not to tax the aforesaid receipts. Disallowance u/s 14A - HELD THAT:- The assessment year involved admittedly is 2006-07. The Hon'ble Bombay High Court in the case of ‘Godrej & Boyce Manufacturing Co. Ltd.’ [2010 (8) TMI 77 - BOMBAY HIGH COURT] held that Rule 8D of the Income Tax Rules is applicable from the assessment year 2008-09 onwards and that for the year prior to assessment year 2008-09, the disallowance u/s 14A is to be made on some reasonable basis. Considering all confirm the disallowance u/s s 14A of the Act on this issue for the year under consideration. disallowance of foreign travel expenses of director's wife - allowable business expenses - HELD THAT:- The interest of justice will be well served if 50% of the expenditure incurred on the foreign traveling of the wife of the director is allowed. We, therefore, confirm the disallowance upto the extent of 50% of the aforesaid amount and the remaining 50% of the disallowance on this issue is ordered to be deleted. Premium payable on redemption of optionally convertible foreign currency bonds - Revenue or capital expenditure - Nature of expenditure - HELD THAT:- Admittedly, in the year under consideration, the assessee has booked the aforesaid expenses payable which was paid in the assessment year 2011-12. In view of this, the said expenditure is to be allowed in the year of payment. Subject to the above observation, this ground of the assessee’s appeal for the year under consideration is hereby dismissed. Treatment to interest reimbursement under Technology Upgradation Fund Scheme (TUFS) - Revenue receipt OR capital receipt - Additional ground - HELD THAT:- Admittedly, this ground has been taken as addition ground which has not been examined by the lower authorities. The Ld. Counsel for the assessee submitted that in the earlier years also this issue has been restored to the file of the CIT(A) for decision afresh. Considering the above submissions of the Ld. Counsel for the assessee, this additional ground is restored to the file of the CIT(A) for adjudication afresh in accordance with law Exclusion of loses debited in the accounts in respect of which insurance claims were received for deduction u/s 80IB and 80IC and exemption u/s 10B - HELD THAT:- Assessee in this respect has invited our attention to the paper book page 2 wherein the details of the items has been given on which insurance claim was received. However, after perusal of the same, it is not clear as to which of the items constituted capital assets and which of the items constituted trading asset of the assessee. We therefore, restore this issue to the file of the assessee to bifurcate the items between capital assets and trading assets and to allow the claim in respect of insurance claim received on trading assets only. Allowability of foreign exchange fluctuation gain for deduction u/s 80IB and 80IC and exemption u/s 10B - assessee submitted the foreign exchange fluctuation gain is in respect of export receipts / receivable of the assessee and any gain in respect of receivable on account of foreign exchange fluctuation in fact contributes to the profits of the assessee from the sale/ export of the products - HELD THAT:- We find force in the aforesaid contention. We do not find any infirmity in the order of the CIT(A) in this respect also directing the Assessing officer not to reduce foreign exchange fluctuation gain from eligible profits of units eligible for deduction Allowbility of deduction u/s 80IB in respect of unit which has already claimed exemption u/s 10B - Double deduction - HELD THAT:- It is not a case of double deduction, hence we do not find any infirmity in the order of CIT(A) on this issue also. The order of the CIT(A)on this issue is accordingly upheld in allowing deduction u/s 80IB in respect of unit which has already claimed exemption u/s 10B Treating the income from sale of shares - capital gains or income from speculative loss - HELD THAT:- Ld. CIT(A) has rightly held that it was not a case of speculative / trading in sale and purchase of the shares. The Ld. CIT(A) therefore, has rightly treated the same as income from capital gains while following the order of his predecessor for assessment year 2005-06. In view of this, we do not find any infirmity in the order of the CIT(A) Issues Involved:1. Treatment of Interest Income2. Reduction of Profits for Deduction Calculation3. Allocation of Head Office Expenses4. Taxation of Sales Tax Exemption/Subsidy5. Disallowance under Section 14A6. Disallowance of Foreign Travel Expenses7. Premium on Redemption of Foreign Currency Bonds8. Treatment of Interest Reimbursement under TUFS9. Income from Sale of SharesDetailed Analysis:1. Treatment of Interest Income:The assessee contested the CIT(A)'s decision to treat interest income of Rs. 1,65,17,422 as 'Income from Other Sources' instead of 'Income from Business and Profession'. The CIT(A) had treated interest from customers and suppliers as business income, while interest from banks and others was classified as 'income from other sources'. The Tribunal upheld the CIT(A)'s decision but allowed netting of interest income against interest expenditure where a direct nexus existed.2. Reduction of Profits for Deduction Calculation:The assessee challenged the reduction of eligible profits for deductions under sections 10B, 80IB, and 80IC by excluding other income such as rent, miscellaneous receipts, DEPB, and commission. The Tribunal directed the Assessing Officer to consider rebate on ocean freight as income of the undertaking but upheld the lower authorities' decision on other items.3. Allocation of Head Office Expenses:The CIT(A) had directed the allocation of net head office expenses to units eligible for deductions under sections 10B, 80IB, and 80IC. The Tribunal found no infirmity in this decision and upheld it.4. Taxation of Sales Tax Exemption/Subsidy:The assessee argued against the taxation of sales tax exemption/subsidy as revenue receipt. The Tribunal, citing the Supreme Court decision in 'CIT-I Vs. M/s Chaphalkar Brothers, Pune and Others', held that such receipts are capital receipts and not taxable.5. Disallowance under Section 14A:The CIT(A) had directed disallowance under section 14A concerning dividend income. The Tribunal, referencing the Bombay High Court decision in 'Godrej & Boyce Manufacturing Co. Ltd.', confirmed a disallowance of Rs. 2 lakhs for the assessment year 2006-07.6. Disallowance of Foreign Travel Expenses:The assessee contested the disallowance of foreign travel expenses for the Chairman's wife. The Tribunal allowed 50% of the expenses, recognizing her assistance in business activities.7. Premium on Redemption of Foreign Currency Bonds:The assessee sought to treat the premium on redemption of optionally convertible foreign currency bonds as revenue expenditure. The Tribunal, referencing the Supreme Court decision in 'Taparia Tools Ltd Vs. JCIT', held that such expenditure should be allowed in the year of payment.8. Treatment of Interest Reimbursement under TUFS:The assessee raised an additional ground regarding the treatment of interest reimbursement under TUFS as a capital receipt. The Tribunal restored this issue to the CIT(A) for fresh adjudication.9. Income from Sale of Shares:The Revenue contested the treatment of income from the sale of shares as capital gains instead of speculative business income. The Tribunal upheld the CIT(A)'s decision to treat it as capital gains, following the precedent set in the previous assessment year.Conclusion:The appeals of both the assessee and the Revenue were partly allowed, with specific directions and confirmations based on the detailed analysis of each issue. The Tribunal's decisions were aligned with relevant case laws and judicial precedents, ensuring a thorough and fair adjudication of the matters involved.