TaxTMI 
TaxTMI 
2015 (1) TMI 834
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.... relying on its earlier order when the same are not accepted by the Department and the same expenditure is clearly disallowable u/s 37(4) of the Act? (B) Whether ITAT was correct in law in taking into consideration interest on FDR, Misc. Receipts and interest from customers on delayed payments for the purpose of Section 80-I of the Act? (C) Whether ITAT was correct in law in holding that the deduction u/s. 32AB was available on the profits of industrial undertaking and not on the aggregate profit of the assessee?" ITA 165/2001 (Assessment Year 1990-91) "(A) Whether ITAT is correct in law in deleting the addition of Rs. 51655/- being the depreciation on guest house when the same is clearly disallowable u/s 37(4) of the Act? (B) Whether ITAT is correct in confirming the order of CIT(A) and thereby allowing the expenditure of Rs. 1,88,610/- incurred by the assessee on rent and repairs of the Guest House when the same is clearly disallowable u/s 37(4) of the Act? (C) Whether ITAT is correct in law in taking into consideration interest on FDRs. Misc. Receipts, interest from customers on delayed payments and dividend for the purpose of Section 80-I of the Act? (D) Wh....
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....icated to the assessee by limited remand. The surviving question for consideration is as to the permission of deduction under section 32AB to the assessee in this case." 4. In terms of the aforesaid order, question A in ITA 170/2001 and questions A & B in ITA No. 165/2001 have been decided in favour of the appellant Revenue and against the respondent assessee. Question B in ITA 170/2001 and question C in ITA No. 165/2001 have been partly decided in favour of the respondent assessee but by observing that assessee would be entitled to netting of the interest paid from interest accrued on application of principles/conclusions nos. 8 and 9 in the case of CIT versus Shri Ram Honda Power Equipment &Ors., (2007) 289 ITR 475. An order of remand stands passed. 5. Thus, what remains to be examined and decided is question C in ITA No. 170/2001 relating to assessment year 1989-90 and question D, in ITA No. 165/2001 relating to assessment year 1990-91. However, we notice that question C in ITA 170/2001 also arises for consideration in ITA 165/2001 and it appears that by mistake the said question has not been framed in the latter ITA. Accordingly, we deem it appropriate to frame fourth ....
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....e, any member, of such firm, association of persons or body of individuals. (2) For the purposes of this section,-- (i) "eligible business or profession" shall mean business or profession, other than-- (a) the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a small-scale industrial undertaking as defined in section 80HHA; (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small-scale industrial undertaking as defined in section 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule; (ii) "new ship" or "new aircraft" includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned by any person resident in India ; (iii) "new machinery or plant" includes machinery or plant which before the installation by the assessee was used outside India by any other person, if the following condi....
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....rtion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of the business or profession carried on by the assessee. xxxxxxxxx (5) The deduction under sub-section (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant: Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section. xxxxxxxxx" 7. Sub-section (1) of Section 32AB of the Act, stipulates the conditions wh....
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....the sum equivalent to 20% of profits earned from the eligible business. The aforesaid computation was made after taking into account only four eligible business units which had earned profits; the eligible businesses, which had suffered losses, were ignored and profits and losses were not aggregated. The Assessing Officer recomputed the deduction under Section 32AB to Rs. 2,15,83,649/- by taking into account aggregate of profits earned by all businesses units, thus meaning that losses suffered in five other business units including the non-eligible business unit, i.e. cash register unit, were also taken into consideration. The Assessing Officer held that the losses suffered in the five unit including cash register division should be also set off and reduced from the profits earned from the four eligible units for computing the deduction. 11. Similarly, in the assessment year 1990-91, deduction under Section 32AB of the Act had been claimed at Rs. 2,97,37,455/- being 20% of the profit of Rs. 14,86,87,276/- earned in three units and ignoring the losses suffered in the remaining five eligible divisions. The Assessing officer, disagreeing, held that the aggregate of all the eligible....
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....ned in some businesses and losses in others, the profits of eligible business would be entitled to the allowance while the losing businesses will be denied the incentive. This should be made abundantly clear, so that there is no attempt at aggregating and offsetting profits and losses of different businesses carried on by the same assesses. ANS. In case of so multi business assesses, both profits and losses in different units are to be considered to ensure that the claim made by the aseessee in respect of the profit earning unit is limited to and is not in excess of the overall profits of the business. If there r.re two units of businesses A & B run by an aseessee, A earning a profit of Rs. 100 and B incurring loss of Rs. 85, the maximum amount of claim that can be made by the assessee will be limited to Rs. 15/-(100 - 85) , notwithstanding a A's entitlement to 20 (20% of 100)." 9.3 It will be observed from a perusal of the above clarification that if the view taken by the assessing officer was to be accepted than the permissible deduction u/s 32AB would have been stated to be 20% of Rs. 15 .tm the abovementioned illustruation." 9.4 having regard to the aforemention....
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....ent that an assessee must have income chargeable under the head „income from profits and gains from business or profession‟ and from the said income, the assessee should have under clause (b) purchased any new ship, new aircraft, new machinery or plant. Quantum of the said deduction was dependent upon the amount spent on purchase of new ship, new aircraft, new machinery or plant, but the quantum could not exceed 20% of the profits from the eligible business or profession. The quantum of profits refers to the specific eligible business and profession and did not postulate aggregation or setting off of losses in the eligible business or profession. 16. Similar issue and contention was examined by the Supreme Court in CIT vs. Canara Workshops (P) Ltd. (1986) 161 ITR 320 (SC). In the said case, the assessee had claimed deduction under Section 80E of the Act on manufacture of springs at Mangalore and Nagpur plant and manufacture unit of hubs and brake drums. However, the assessee had not taken into account,the losses suffered in the alloy steel industry. The question of aggregation or setting off of losses suffered in the alloy steel industry from the profits of spring un....
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....s of a single industry. The deduction of eight per cent.is intended to be an index of recognition, that a priority industry has been set up and is functioning efficiently. It was never intended that the merit earned by such industry should be lostor diminished because of a loss suffered by some other industry. It makes no difference that the other industry is also a priority industry. The co-existence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other. The legislative intention was to give to the meritorious its full reward. To construe section 80E to mean that you must determine the net result of all the priority industries and then apply the benefit of the deduction to the figure so obtained will be, in our opinion, to undermine the object of the section. An example will illustrate this. An industry entitled to the benefit of section 80E could have its profits wholly wiped out on adjustment against a heavy loss suffered by another industry, and, thus, be totally denied the relief which should have been its due by virtue of its profits. In our opinion, each industry must be considered on its own workin....
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....ection 32AB(3) of the Act sets out separate methods for determining the profits of eligible business or profession in cases where the accounts of the eligible business are maintained separately and in cases where the accounts of the eligible business are not maintained separately. Section 32AB(3)(a) deals with determination of the profits of the eligible business or profession where the accounts are maintained separately and Section 32AB(3)(b) deals with the determination of the profits of eligible business where accounts are not maintained separately. Thus, Section 32AB(3)(a) of the Act deals with each eligible business separately and the profits of each eligible business has to be determined by increasing or decreasing the profits of each eligible business computed separately under the provisions of the Companies Act, 1956. The increases and decreases permitted under Section 32AB(3)(a) do not contemplate setting off the loss of another eligible unit. Therefore, in the absence of any provision for setting off the loss suffered by one eligible business from the profits of another eligible business for the purpose of deduction under Section 32AB(1) of the Act, the Tribunal was ju....
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....sion. However, the said set off is not relevant for the purpose of computing 20% deduction under Section 32AB(1) of the Act, in view of the specific provisions contained in Section 32AB(3)(a) of the Act for determining the profits of each eligible business of the assessee." 18. The aforesaid paragraphs refer to the amendments made by Finance Act, 1989 applicable from 1st April, 1991. With effect from the said date, the concept of eligible business referred to in Section 32AB was negated. With effect from 1st April, 1991, the provisions of Section 32BA will have to be read and interpreted in light of the said amendments. However, for the assessment years in question under the applicable provisions only the profits of the eligible business can be taken into consideration for computing the deduction under Section 32AB of the Act and aggregation will not be permissible. Accordingly, Question C in ITA No. 170/2001 and Question E in ITA 165/2001 are decided in favour of the assessee and against the Revenue. 19. This brings us to the question D in ITA 165/2001. The relevant facts which are found in the assessment order are that the assessee for the purpose of computation of profits ....
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....2,74,000/- Nature of assistance received in the export business. I am unable to accept the assessee's contention that the total income shown under the head „other income‟ should be assessed as the assessee's business income. On verification of the above details it may be appreciated income shown against item No. I, II, IV, VII and VIII have been earned in the ordinary course of business carried on by the assessee. However, the income from the remaining heads represents the receipt from the various investments. The assessee company itself has shown the dividend income and interest on debentures under the head income from other sources. The following income will therefore, be assessed under the head income from other sources:- I. Interest on debentures/F.D. Rs.20,775 II. Interest on loans/intercorporate Deposits Rs.86,16,571 III. Dividend 3,01,460 89,38,806 As the above income is being assessed under the head „income from other sources‟, the same is also required to be excluded from the total business income for the purpose of section 32AB of the I.T. Act." 21. The Commissioner of Income Tax (Appea....
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....deduction under the said section was to be computed in accordance with Schedule VI of the Companies Act. 24. Similar controversy had arisen before the Supreme Court in Apollo Tyres Limited vs. CIT (2002) 255 ITR 35 (SC) and was answered in the following manner: "The second question framed by us hereinabove arises for our consideration in the following factual background. The assessee-company in its books of account had shown certain sums of money representing "dividend" from units of the UTI and had included the said sums in the computation of its profit as income from "eligible business". It also claims that out of such income from "eligible business" it had purchased certain new machineries for its factory because of which it claimed a deduction of 20 per cent. of the said income as provided in section 32AB of the Income-tax Act. This claim of the company has been allowed by the Tribunal and confirmed by the High Court. The argument of the Revenue in this regard is that the income received by the assessee-company from its investment in the UTI has been declared by the company itself as an "income from other sources" which head of income is different from income from "profit....
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....s contemplated under section 32AB of the Act. The question then is : is it an eligible business under the said section ? The term "eligible business" is defined under sub-section (2) of section 32AB. As per that definition, all business of an assessee-company will be an eligible business unless it falls under the type of business enumerated in sub-clauses (a) and (b) of section 32AB(2). It is nobody's case that this business of the assessee-company is one of those businesses which fall under business enumerated in sub-clauses (a) and (b) of sub- section (2) of section 32AB. Therefore, there is no doubt that the business of the assessee-company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under section 32AB so long as it is held that the investment in the units of the UTI by the assessee-company is in the course of its "eligible business". Therefore, in our opinion, the 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 of the Act." 25. The aforesaid paragraph indicates that to qualify fo....