TaxTMI 
TaxTMI 
2017 (11) TMI 521
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to be computed in the manner laid down in Chapter-IV D?" 4. This Court while admitting the ITA No.537/2011 has framed following substantial question of law: "Whether in the facts and circumstances of the case the ITAT is justified in considering the interest as part of the book profit in contravention of Section 40(b) i.e as per Section 40(b) the book profit has to be computed in the manner laid down in Chapter-IV D?" 5. This Court while admitting the ITA No.22/2015 has framed following substantial question of law: "Whether the Tribunal was legally justified in deleting the disallowance of Rs. 2,30,00,796/- made on account of remuneration to partners by taking the interest earned on FDRs as part of book profit and business income under Section 28 specifically when it was "Income form other sources" and contrary to Section 40(b), Explanation 3 and Section 40(b) (v) (2)?" 6. Counsel for the appellant contended that the Chapter IV-D consist of Section 28 to 44 under heading of profits and gains of business or profession. 7. She has also relied upon Section 40(b)(v) read with Explanation 3 which reads as under:- "40(b)(v) Any payment of remunera....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (+) Rs. 1,26,892/- Less Interest on capital (-) 2,05,79,959/- Add. (Expenses diallowance as per (Para I to IV) (+) 1,62,139/- Rs.11,07,17,946 /- 9. She contended that the AO after taking into account has rightly assessed the income and held that FD income is not a business income and the reasons adopted by the AO was wrongly set aside by the CIT(A) and it is contended that the Tribunal while considering the matter has observed as under:- "2.Rs.87,55,582/-: 2.1 The ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of the claim of remuneration paid to the partners under Section 40b(v)(2) of the IT Act of Rs. 87,55,582/- (Rs.5,30,95,260/- claimed less Rs. 4,43,39,678/- allowed) by the AO by holding that interest on FDR of Rs. 2,16,07,375/-, was an income under the head 'income form other sources' and not 'income from profits and gains of business or profession', hence will not be a part of book profit for the purpose of Section 40b(v), which is totally contrary to the provisions of law and facts. Hence, such interest income be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the order of the Tribunal as well as CIT(A) and contended as under:- "It may be also seen that these FDRs not made as a business necessity without which the business of the assessee cannot be run and in fact these FDRs are made out of surplus fund available with assessee. In this background, as held earlier, income from bank FDRs etc. cannot said to be business income and the same is to be treated as income from other sources. The following case laws are also replied upon. I Madhya Pradesh State Industries Corporation Ltd. Vs. CIT (1968) 69 ITR 824 (MP). II Shamas Tabrez Vanti (In Re) (2005) 273 ITR 299 the Authority of Advance Ruling. III Murli Investment Company vs. CIT, 167 ITR 368 (Raj.) IV CIT vs. Rajasthan Land Development Corporation 211 ITR 597 (Raj.) V CIT vs. Monarch Tools Pvt. Ltd. (2002) 260 ITR 258. Considering these facts it is argued that the remuneration to partners is calculated as under:- Net Profit as per P& L a/c (Before appropriation) Rs.11,05,67,193/- Less Income chargeable to tax under income from other sources (Interest from bank FDRs) Rs.1,73,21,273/- Interest from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... remuneration. 7. The Tribunal has proceeded on the basis that for the purpose of ascertaining such ceiling on the basis of book profit, the profit shall be in the profit and loss account and is not to be classified in the different heads of income under Section 40 of the Act. The interest income, therefore, cannot be excluded for the purposes of determining the allowable deduction of remuneration paid to the partners under Section 40B of the Act. 8. Counsel for the revenue vehemently contended that for the purpose of ascertaining the limit, only business income would be relevant and not any other income. In the present case, however, we need not enter into such controversy. The assessee had held out that it is in the business of purchasing raw cotton and ginning the same. It is a seasonal business. The interest income was generated out of spare funds invested in the fixed deposit. Such income was declared as part of the business income and that is how even the Assessing Officer had accepted the same. That being the position, and the Assessing Officer in the assessment taxed such income as business income, we do not see any question of law arising. The correctness....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble to bring certain companies with the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that s. 115J, was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 30 per cent of its book profits as shown in its own account. For the said purpose, s. 115J makes the income reflected in the companies books of accounts as the deemed income for the purpose of a assessing the tax. If we examine the said provision in the above background, we notice that the use of words "in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an AO under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certif....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aving been properly maintained in accordance with the Companies Act. The AO thereafter has the limited power of making increase and reductions as provided for in the Explanation to the said section. To put it differently, the AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s.115J." 17. The 4th judgment which has been relied on it in the case of CIT v/s Hycron India Ltd. (2008) 219 CTR 288 (Raj.), wherein it has been observed as under under:- "10. Thus it is clear, that for all purposes, profits and gains of business or profession, and income from other sources, are treated, by the Act to be different species of income. In this backgrounds, s. 2(24) as such, does not categories separately, profits and gains of business or profession. Thus expression "profits and gains" as used in s. 2(24), is wider expression, and is not confined to "profits and gains of business or profession". 11. In this background, the language of s. 10B, again, provide for exemption, with respect to any "profits and gains" derived by the assessee, and is not confined to "profits and gains of business and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause. 11. The decision in Lakhanpal National Ltd's case which clearly laid down the interpretation of s. 43B was followed by the judgments of the Madras High Court and Bombay High Court and was again followed by the decision of Special Bench of the Tribunal none of which have been challenged. In these circumstances, the principle laid down in Union of India vs. Kaumudini Narayan Dalal (supre), CIT vs. Narendra Doshi (supra) and CIT vs. Shivsagar Estate (supra) clearly applies. We see no 'just cause' as would justify departure from the principle. Hence, in our view the Revenue could not have been allowed to challenge the principle laid down in Lakhanpal National Ltd's case (supra) which was followed by the IAC in the case of the assessee in the three assessment years in question. We are, therefore, of the view that the CIT, the Tribunal and the Calcutta High Court erred in permitting the Revenue to raise a contention contrary to what was laid down by the Gujarat High Court in Lakhanpal National Ltd.'s case. This decision has been subsequently foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e amount credited to the reserve account under section 80 HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section; (ha) the amount deemed to be the profits under sub-section (3) of section 33AC] [if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited] to the profit and loss account, and as reduced by,-- (h) the amount withdrawn from reserves [(other than the reserves specified in section 80HHD)] of provisions if any such amount is credited to the [profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year to the assessment year commencing of or after the 1st day of April, 1988 shall not be reduced form the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this explanation; or] (ii) the amount of income to which any of the pr....