2004 (4) TMI 6 - HC - Income Tax

High Court Ruling on Deductions & Eligible Profits

The High Court upheld the deletion of the addition to closing stock on account of Modvat credit, citing a Supreme Court precedent. Regarding the inclusion ... '1. Whether Tribunal was justified in deleting addition made to the closing stock on account of Modvat credit? 2. Whether Tribunal, was justified in holding that income from interest, rent, dividend and profit on sale of toothpaste should be included in the eligible profits for working out deduction allowable under section 32AB?' - dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of eligible business under section 32AB - Revenue did not venture to demonstrate that the business of the assessee falls under the type of business enumerated in sub-clauses (a) and (b) of section 32AB(2). Accordingly, the Tribunal's view relating to deduction under section 32AB with regard to income from interest, rent, dividend and profit on sale of toothpaste that they fall within the meaning of 'eligible business' cannot be faulted Issues:1. Whether deletion of addition to closing stock on account of Modvat credit was justifiedRs.2. Whether income from interest, rent, dividend, and profit on the sale of toothpaste should be included in eligible profits for deduction under section 32AB of the Income-tax Act, 1961Rs.Analysis:1. The first issue pertains to the deletion of an addition to closing stock on account of Modvat credit. The Revenue conceded that the matter is settled by the Supreme Court's judgment in CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275. Therefore, the High Court upheld the deletion of the addition to closing stock.2. The second issue revolves around whether income from various sources should be included in eligible profits for deduction under section 32AB. The High Court relied on the Supreme Court's decision in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273. The Court highlighted that for an assessee to claim a deduction under section 32AB, the income must be derived from an 'eligible business' and utilized for the purchase of new plant or machinery. In this case, the Tribunal found that the assessee's investment in UTI was part of its business activities and qualified as an 'eligible business' under section 32AB. The Court noted that the business of buying and selling units was intertwined with the assessee's primary business of manufacturing and selling tires. As the investment in UTI was considered part of the 'eligible business,' the income from such investment, including dividend income, should be included in computing the profits eligible for deduction under section 32AB. The Revenue failed to demonstrate that the assessee's business fell under the types of businesses excluded from being 'eligible businesses' under section 32AB(2).In conclusion, the High Court dismissed the appeal, upholding the Tribunal's view that income from interest, rent, dividend, and profit on the sale of toothpaste should be included in the eligible profits for deduction under section 32AB.