1997 (2) TMI 175 - AT - Income Tax

Tribunal decision: Advance payment included under Section 32AB, interest income not considered for relief.

The tribunal upheld the CIT(Appeals)'s decision to include advance payment for machinery under Section 32AB as 'amount utilized,' rejecting the revenue's ... Assessment Year, Assessment Year, Industrial Undertaking, Industrial Undertaking, Interest Income, Interest Income, Plant And Machinery, Plant And Machinery, Profits And Gains, Profits And Gains Issues Involved:1. Inclusion of advance payment for machinery under Section 32AB.2. Inclusion of interest income for computation of relief under Sections 80HH and 80I.Issue-wise Detailed Analysis:1. Inclusion of Advance Payment for Machinery under Section 32AB:The first ground of appeal by the revenue contends that the CIT(Appeals) erred in directing the Assessing Officer to include the amount of Rs. 15,55,875, representing advance for acquisition of machinery, for the purpose of computation under Section 32AB. The assessee, a Public Limited Company engaged in manufacturing and sale of jelly-filled telephone cables, had claimed a deduction under Section 32AB for the amount utilized for the purchase of machinery. The Assessing Officer had excluded the advance amount, considering it not 'utilized' for the deduction purpose. However, the CIT(Appeals) included this amount, leading to the revenue's appeal.The tribunal examined whether the advance payment could be considered 'amount utilized' under Section 32AB. The section allows deductions for amounts either deposited with the Development Bank or utilized for the purchase of machinery within the previous year. The tribunal noted that the emphasis of Section 32AB is on the 'utilization of amount' during the year, not necessarily the acquisition or installation of machinery. Since the advance was a part payment against the cost of machinery, it was deemed utilized for the purchase. The tribunal upheld the CIT(Appeals)'s decision, rejecting the revenue's appeal, and cited similar views from ITAT Indore and Nagpur Benches.2. Inclusion of Interest Income for Computation of Relief under Sections 80HH and 80I:The second ground of appeal by the revenue challenges the CIT(Appeals)'s direction to include Rs. 10,22,476, representing miscellaneous income, for computation of relief under Sections 80HH and 80I. The assessee had received interest from various sources, which the Assessing Officer excluded from the profit, considering it not derived from the industrial undertaking. The CIT(Appeals) included the interest income, except for interest on income-tax refunds and delayed payment from shareholders.The tribunal analyzed whether the interest income could be considered 'derived from' the industrial undertaking. The tribunal emphasized that the term 'derived from' implies a direct nexus with the industrial undertaking, unlike the broader term 'attributable to.' The tribunal referred to the Supreme Court's interpretation in Cambay Electric Supply Industrial Co. Ltd. v. CIT and the Madhya Pradesh High Court's decision in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd., concluding that the interest income did not have a direct relationship with the industrial undertaking. Thus, the interest income could not be included for deduction under Sections 80HH and 80I.However, the tribunal agreed with the assessee's alternative submission that if the interest income is excluded, it should be net interest income (interest received minus interest paid). The tribunal directed the Assessing Officer to verify the interest paid on borrowed funds used for the deposits/loans and exclude only the net interest income from the profits and gains of the industrial undertaking for the purpose of Sections 80HH and 80I.Conclusion:The revenue's appeal was partly allowed for statistical purposes, with the tribunal rejecting the first ground and setting aside the second ground for verification. The cross-objection filed by the assessee was dismissed as infructuous.