2011 (12) TMI 747 - AT - Income Tax

Tribunal Decision on Section 80IB Deduction and Indexation of UTI Bonds

The Tribunal partly allowed the revenue's appeal, upholding the CIT(A)'s decision on deduction under Section 80IB and disallowance of salary and wages. ... - Issues Involved:1. Deduction under Section 80IB.2. Disallowance of salary and wages.3. Indexation on UTI deep discount bonds.Detailed Analysis:Issue 1: Deduction under Section 80IBThe first issue revolves around the deletion of the addition of Rs. 2,06,49,280/- made on account of Deduction under Section 80IB. The Assessing Officer (A.O.) had found that the assessee was not eligible for the deduction as the number of workers attending the factory and working in the manufacturing process was less than 10. However, the CIT(A) deleted this addition, and the Tribunal upheld this decision based on its previous rulings in the assessee's own case for the assessment years 2003-04 and 2006-07. The Tribunal found that the A.O. had only considered workers engaged in one unit, whereas the assessee had another washing unit of the same activity. The workers from both units should have been considered, and the CIT(A)'s findings were supported by the wages register, attendance register, and inspection reports from the factory and ESI inspectors. Thus, the Tribunal concluded that the assessee was eligible for the deduction under Section 80IB, and the addition made by the A.O. was rightly deleted by the CIT(A).Issue 2: Disallowance of Salary and WagesThe second issue pertains to the deletion of the addition of Rs. 1,50,000/- each towards salary and wages disallowed by the A.O. The Tribunal noted that the CIT(A) had allowed the actual salary expenses incurred on the workers since it was established that the assessee was employing more than 10 workers. This finding was in line with the Tribunal's decision on the first issue regarding the number of workers. The Tribunal found no reason to interfere with the CIT(A)'s order, and thus, the ground raised by the revenue was rejected.Issue 3: Indexation on UTI Deep Discount BondsThe third issue concerns the allowance of indexation on UTI deep discount bonds, which was disallowed by the A.O. while computing income from capital gains. The A.O. had noted that the assessee had claimed a Long Term Capital Loss by applying indexation to the cost of acquisition of UTI MIP 99 units, which were converted into tax-free bonds. The A.O. disallowed the indexation benefit, invoking the 3rd proviso to Section 48, which excludes bonds and debentures from the benefit of indexation. The CIT(A) allowed the indexation benefit by following a Tribunal decision in the case of Maanaraj Trading Pvt. Ltd.Upon review, the Tribunal examined the definitions and characteristics of bonds and debentures as discussed in various legal and commercial dictionaries and the Income Tax Act. The Tribunal concluded that UTI MIP 99 units qualify as bonds because they bind UTI to pay a fixed sum annually and repay the capital amount after a fixed term, similar to fixed deposits and National Savings Certificates. Since the Tribunal in the Maanaraj Trading case did not address whether UTI MIP units are bonds, the Tribunal in the present case decided independently that UTI MIP 99 units are indeed bonds. Consequently, the assessee was not eligible for indexation benefits as per the 3rd proviso to Section 48. Therefore, the Tribunal allowed the revenue's appeal on this ground.Conclusion:The appeal of the revenue was partly allowed. The Tribunal upheld the CIT(A)'s order on the issues of deduction under Section 80IB and disallowance of salary and wages but reversed the CIT(A)'s order on the issue of indexation on UTI deep discount bonds, thereby disallowing the indexation benefit.