2001 (2) TMI 258 - AT - Income Tax

Tribunal allows royalty deduction, dismisses donation claim, directs interest review

Himson Textile Engg. Industries Ltd. Versus Deputy Commissioner Of Income Tax.

The Tribunal partly allowed the appeal, permitting the deduction of royalty payment but dismissing claims related to donation disallowance and deduction ... Business Expenditure, Allowability of Issues:1. Disallowance of deduction of donation aggregating to Rs.5,65,568 under section 37(1).2. Disallowance of royalty paid to M/s. Teijin Seiki Ltd., Japan under section 40(a).3. Deduction under section 80-I in respect of disclosed amount and rental income.4. Non-consideration of interest under section 244A by the ld. CIT(A).Issue 1: Disallowance of donation under section 37(1):The appellant, a textile machinery manufacturer, claimed a deduction of Rs.5,65,569 for donations made to charitable institutions connected with business parties. The Assessing Officer disallowed the claim under section 37(1), upheld by the CIT(A) citing previous disallowances by the Tribunal. The appellant argued that the donation to Sahakar Charitable Foundation was for business purposes. The Tribunal noted the lack of direct nexus between the donation and business, emphasizing the charitable nature of the trust. Citing relevant case laws, the Tribunal held that the donation lacked a business purpose, disallowing the deduction under section 37(1).Issue 2: Disallowance of royalty payment under section 40(a):The appellant contested the disallowance of royalty payment to M/s. Teijin Seiki Ltd., Japan under section 40(a) due to tax deduction in a subsequent year. Both parties agreed to allow the deduction in the succeeding assessment year, and the Tribunal directed accordingly.Issue 3: Deduction under section 80-I:The appellant's claim for deduction under section 80-I for disclosed amount and rental income was dismissed by the Tribunal based on a previous order for the assessment year 1990-91. The Tribunal followed the precedent and rejected the appellant's claim.Issue 4: Non-consideration of interest under section 244A:The appellant raised a ground regarding the non-granting of interest under section 244A due to a delayed return. The Tribunal directed the CIT(A) to adjudicate on this ground after hearing the appellant.In conclusion, the appeal was partly allowed concerning the disallowance of royalty payment, while other issues such as donation disallowance and deduction under section 80-I were dismissed based on legal precedents and lack of business nexus. The Tribunal directed further consideration on the interest issue under section 244A.