2015 (1) TMI 438

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.... allowed the appeal of the assessee. 2.1. Being aggrieved and dissatisfied with the order of the CIT(A), the revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal vide order dated 24.09.1999 partly allowed the said appeal. Hence, this appeal is filed at the instance of the revenue. 3. While admitting this appeal on 14.02.2001, the Court had formulated the following substantial questions of law:"              1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal has substantially erred in law in allowing deduction under Section 32AB on the income from the lease rent treating the same as business income ?              2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal has substantially erred in law in deleting the addition made on account of lease rent received from letting out land and building and machinery to M/s Tide Industries which was brought to tax under the head income from other sources"? 4. Learned counsel for the appellant-revenue has contended that both the au....

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.... appellant company on this income.              4.2. Similarly, bar interest on debentures, the Assessing Officer has observed after referring to the language of Section 32AB(3)which refers to business income as understood in the commercial sense. Therefore, in his opinion, the very fact that the appellant company itself has stated that the purpose of borrowing funds was to make investment and since the investments were sold in the next year was sufficient to treat the income by way of other sources not eligible to be considered for the purpose of deduction U/s. 32AB. It would be pertinent to mention here the Section 32AB, read as under:"              32AB.(1) Subject to the other provisions of this Section, where an assessee, whose total income includes income chargeable to tax under the head "profits and gains of business of professions" has out or such income,               (a)deposited.....................earlier,or              &nbs....

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....on of profits of eligible business. On appeal the commissioner (Appeals), sustained the assessment order. From the language of Section 32AB(1) and the Board's circular no.461 dated 9.7.1986 issued thereunder, it is clear that investment deposit or the purchases of a new asst or plant must have come out of the income chargeable to profit and gains of business or profession. Since the income from units of UTI was chargeable under the head income from other sources, the same could not be construed as forming part of the income chargeable to tax under the head 'profits and gains of business or professional.'. But the definition of 'eligible businessor profession' is a wide sense. Except, those business specified in clauses (a) and (b) of section 32AB (2), all other business or profession have to the construed as eligible business. In other words, an eligible business need not necessarily be an industrial or production or an article. One of the components to be considered for deduction under Section 32AB(1)(iii) is the profit of eligible business, to the extent of 20 per cent of the same, computed in the manner laid down in section 32AB(3). Therefore, whatever, income earned by the as....

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.... (Bom.)                        3) CIT Vs. Prem Chand Jute Mills Ltd. (1978) (114 ITR 769) (Cal.).                        4) CIT Vs. Hindustan Aluminium Corpn. Ltd. (176 ITR 206 at page 207208 (cal.)                        5) CIT Vs. Shaan Finance (p) Ltd. (109 CTR 209 (Kar.)                        6) CIT Vs. New India Industries Ltd. (201 ITR 208) at page 246/247. Laid down the following principles:1) Lease rent derived from exploration of commercial asset is required to be treated as business income and not income from other sources. (ii) The fact that machinery and plant which is exigible to relied under section 32A (investment Allowance) or Section 33 (Development Rebate) should not be necessarily exploited by the assessee himself, even if t....