AI Drafter 
TaxTMI 
TaxTMI 
2004 (9) TMI 37
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....Tribunal was legally justified in holding that the ex gratia bonus payments made by the assessee over and above the bonus payable in accordance with the provisions of the Bonus Act, 1965 were an allowable deduction? 4. Whether, on the facts and circumstances of the case, the Tribunal was justified in directing the Assessing Officer to treat the interest and dividend income as business income while the Assessing Officer has rightly assessed the same as 'Income, from other sources'?" Briefly stated, the facts giving rise to the present appeal are as follows: The respondent (hereinafter referred to as "the assessee-company") is a public limited company incorporated under the provisions of the Companies Act. Earlier it was known as the Rampur Distillery and Chemical Company Limited. It is engaged in the manufacture of industrial alcohol, Indian made foreign liquor, country liquor, fertilizers, etc. During the assessment year 1990-91, the previous year of which ended on March 31, 1990, the assessee-company filed the return of income on December 31, 1990. It showed nil income after set off of carry forward loss of Rs. 2,31,67,914. The return of income was processed under section....
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.... that the copy of the balance-sheet filed by the assessee as on December 31, 1985, goes to show that the assessee was having sufficient funds on account of share capital, share application money, reserve and surplus and it was having sufficient funds at its disposal out of which a small sum of Rs. 17.19 lakhs could easily be diverted. In respect of the investment allowance of Rs. 42,526 and Rs. 38,792, the Tribunal had held that the assessee-company is entitled for the investment allowance on the telephone exchange as it is to be treated as plant. In respect of the ex gratia payment of Rs. 45,927, the Tribunal had held that the same is an allowable deduction. So far as the taxability of dividend and interest income is concerned, the Tribunal has held that in the earlier years, the same nature of income was treated as income of business and, in the absence of any new fact and material, the same type of income cannot be brought under the head "Income from other sources". It has further held that there was no increase in the secured loan taken from the financial institution/bank and rather there was a reduction in the balance and, thus, whatever advances was given by the assesse....
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....(iii) CIT v. H. R. Sugar Factory Pvt. Ltd. [1991] 187 ITR 363 (All); (iv) CIT v. H. R. Sugar Factory [1991] 190 ITR 643 (All); (v) CIT v. Saraya Sugar Mills (P.) Ltd. [1992] 193 ITR 575 (All); and (vi) CIT v. Saraya Sugar Mills (P.) Ltd. [1993] 201 ITR 181 (All). So far as the investment allowance is concerned, he submitted that no investment allowance under section 32A of the Act is admissible as the assessee-company is engaged in the manufacture or production of beer, wine and other alcoholic spirits which are mentioned at Item No. 1 in the Eleventh Schedule of the Act. According to him, in view of the specific provisions of sub-section (2A) of section 32A of the Act, investment allowance is not admissible at all. He further submitted that under clause (b) of the second proviso to section 32A(1) of the Act, investment allowance is not admissible to any office appliances and telephone exchange is an office appliance and cannot be said to be a plant. In respect of ex gratia bonus payment made by the assessee-company, he submitted that under section 36(1)(ii) of the Act, the amount of ex gratia payment towards bonus which is over and above the ceiling fixed under the ....
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.... (ii) Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC); (iii) CIT v. H. P. Lohia [1993] 203 ITR 928 (Cal); and (iv) CIT v. Sridev Enterprises [1991] 192 ITR 165 (Karn). On the question as to whether investment allowance in respect of the telephone exchange installed at the assessee-company-distillery and fertilizer units- should be allowed or not, Sri Upadhaya submitted that to that extent, the plea of the assessee-company manufacturing one of the items mentioned in the Eleventh Schedule of the Act was not raised before the Tribunal and, therefore, this question does not arise. He submitted that the telephone exchange has been held to be a plant and, therefore, the assessee-company is entitled to investment allowance. It cannot be treated as a mere office appliance. He relied upon the following decisions: (i) CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj); (ii) CIT v. Elecon Engineering Co. Ltd. [1987] 166 ITR 66 (SC); and (iii) CIT v. Electronics Research Industries Pvt. Ltd. [1991] 192 ITR 20 (Karn). In respect of the ex gratia payment of Rs. 45,927, he submitted that the proviso to section 36(1)(ii) of the Act which prohibited allowance of b....
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....capital) must have been borrowed by the assessee; (b) that it must have been borrowed for the purpose of business; and (c) that the assessee must have paid interest on the said amount and claimed it as a deduction. The apex court has held that the expression "for the purpose of business" is wider in scope than the expression "for the purposes of earning income profits or gains" and has held that the expenditure incurred shall be for carrying on of the business and the assessee shall incur it in the capacity of a person carrying on the business. If the borrowing was made to meet the personal obligation and not the obligation of the business, such expenditure incurred by the assessee by way of payment of interest thereon was not for carrying on business and such expenditure can, by no stretch of imagination, be regarded as business expenditure. In the case of Marolia and Sons [1981] 129 ITR 475 (All), this court has held as follows: "Section 36(1)(iii) of the Income-tax Act deals with the deduction on the amount of interest paid in respect of capital borrowed for the purposes of business or profession. It would be found from clause (iii) of sub-section (1) of section 36 of the Act....
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....ain without charging any interest thereon while it was paying interest on the amounts borrowed by it. To the extent, therefore, to which it would have been in a position to collect interest on the outstandings due to it from others, it could not be permitted to claim interest paid by it to outsiders. In our opinion the view taken by the Income-tax Officer is clearly unsustainable. As has been pointed out by the Madhya Pradesh High Court in Ram Kishan Oil Mills v. CIT [1965] 56 ITR 186 the only conditions required to be satisfied in order to enable the assessee to claim a deduction in respect of the interest under section 10(2)(iii) are, firstly, that money must have been borrowed by the assessee; secondly, it must have been borrowed for the purpose of business and, thirdly, the assessee must have paid interest on the said amount and claimed it as a deduction. It is not the requirement of the provision that the assessee must further show that the borrowing of the capital was necessary for the business so that if at the time of borrowing the assessee had sufficient amount of its own, the deduction could not be allowed. Similarly, the Madras High Court in Amna Bai Hajee Issa v. CIT [1....
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....9 lakhs. Thus, it cannot be said that the amount of loan advanced to the sister concern, namely, M/s. Rampur International Private Limited, was out of the borrowed funds. In the case of East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627, the apex court while holding that the payment of interest of Rs. 28,488 on money borrowed for payment of income-tax was for meeting a personal liability and such expenditure can never be held to be wholly and exclusively for the purposes of earning income, found considerable force in the arguments advanced by learned counsel but whether the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business, would essentially depend upon whether the entire profits had been pumped into the overdraft account, whether such profits were more than the tax amount paid for the relevant year and other germane factors. Since the appellant had not advanced the contention either before the Tribunal or the High Court, and the amplitude of the question posed before the High Court did not bring within its sweep the contention advanced by the appellant, the apex court was of the view that it ....
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....use (ii) of sub-section (1) of section 36 of the Act, which has been omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, reads as follows: "Provided that the deduction in respect of bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act, 1965 (21 of 1965), apply shall not exceed the amount of bonus payable under that Act: Provided further that the amount of the bonus (not being bonus referred to in the first proviso) or commission is reasonable with reference to- (a) the pay of the employee and the conditions of his service; (b) the profits of the business or profession for the previous year in question; and (c) the general practice in similar business or profession;" Learned counsel for the Revenue did not dispute this position. Thus, after the omission from April 1, 1989, the ex gratia payment towards bonus is an allowable deduction. Question No. 4: It is not in dispute that the assessee-company had received interest on the deposits/advances made by it. It was a running concern. The amount of interest has not been received by it on account of delayed pa....
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.... [1997] 227 ITR 172. The apex court has held as follows: "The basic proposition that has to be borne in mind in this case is that it is possible for a company to have six different sources of income, each one of which will be chargeable to income-tax. Profits and gains of business or profession is only one of heads under which the company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company commences its business, its income from any other source will not be taxed. If the company, even before it commences business, invests the surplus funds in its hands for purchase of land or house property and later sells it at profit, the gain made by the company will be assessable under the head 'Capital gains'. Similarly, if a company purchases a rented house and gets rent, such rent will be assessable to tax under section 22 as income from house property. Likewise, a company may have income from other sources. It may buy shares and get dividends. Such dividends will be taxable under section 56 of the Act. The company may also, a....