TaxTMI 
TaxTMI 
TaxTMI 
2020 (5) TMI 75
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....ok profits U/s.115JB of the Act, the Ld.CIT in his order passed U/s.263 of the Act, had observed as under:- "Assessing Officer assessed the book profits under section 115JB of the Income Tax Act at Rs. 73,88,189. While doing so, he took the profit as per profit and loss account at Rs. 1,24,02,827 (before prior period adjustment) instead of Rs. 1,66,61,370/- which was the profit carried to the balance-sheet. In other words, AO failed to take into account Rs. 42,58,543/- credited to profit and loss account. Adjustment made by the assessee in the computation of book profit u/s.115JB by way of prior period income, withdrawal from provisions for gratuity and leave salary and deduction of unabsorbed depreciation was not in accordance with law and have not been examined by the assessing officer in the course of the assessment proceedings. Assessee's reply: Adjustments made to the computation u/s.115JB are in accordance with law and under explanation (1) of proviso to Section 115JB(2). Decision: I have carefully examined the assessee's reply and computation of book profits u/s115JB. In the profit and loss account, the assessee has profit for the year as Rs. 1,24,22,827/- but profit....
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....account is Rs. 4,97,124/- instead of adding this amount to book profit the assessee has adjusted an amount of Rs. 7,24,722/- being the amount of leave salary actually paid. According to the assessee, these adjustments are made in accordance with explanation (i) to Section 115JB(2). The explanation (i) to Section II5JB(2) states that the net profit as shown in the P&L Account shall be reduced by --- the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: From this, it is clear that clause (i) applies only to those withdrawal from reserves which have been credited back to profit and loss account. It does not provide for adjustment against the provisions made for this year against the amount utilized by the assessee without crediting the amount to the P&L account. The assessee cannot, under this clause, deduct from book profits the amount utilized out of the reserve for payment of gratuity leave salary etc. The adjustment made by the assessee is, therefore, erroneous and prejudicial to the int....
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....iness loss - (-) Rs. 4,71,90,749/- ii) Short Term Capital Gain - Rs. 4,85,485/- iii) Long Term Capital Gain - (-) Rs. 1,73,74,551/- iv) Income from other sources - Rs. 6,13,81,287/- Gross Total Income before set off of Brought Forward loss Rs. 1,46,76,023/- The Ld.AO had adjusted the brought forward business loss of assessment year 1998-99 amounting to Rs. 1,46,76,023/- against the aforesaid income. The Ld.CIT observed that brought forward business loss could be set-off only against business income of the assessee and since, in the opinion of the Ld.CIT, there was no business income for the assessee during the year under consideration, he held that the order passed by the Ld.AO is erroneous and prejudicial to the interest of the Revenue by allowing the set-off of brought forward loss. We find that it is undisputed that the assessee company is engaged in the promotion of industries in TamilNadu by making investment in various companies as well as having joint venture thereon. The amounts invested in those companies were by way of investment in shares for which the resultant income would be in the form of dividend till the time of holding of those shares. The said divi....
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....bunal in assessee's own case reported in 124 ITD 117 for the assessment years 1994-95 and 1995-96, which is a third member decision dated 13.11.2009. We have gone through the said decision and we find it would be relevant to reproduce the operative portion of the said judgment of the third member which is as under:- 6. I have duly considered the rival contentions and the material on record. It is undoubtedly established by the judgment in the case of Distributors (Baroda) (P) Ltd.(supra) that deduction under s. 80M is to be given only on net dividend. The reasoning of the Supreme Court to hold so is that it is the net income which gets included in the total income of the assessee and therefore, the deduction has to be on the income which is included in the total income. The situation, however, changes when the income, though per Se, is dividend income but has a different complexion on account of the activity carried out by the assessee. If the assessee is not an investor, but a trader in shares or is one like the assessee before us, then the dividend income changes its complexiont obusiness income. In other words, the dividend income received by such person is in reality his bu....
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....annot be made. This was also the view taken by the Calcutta High Court in the case of National & Grindlays Bank (supra). 7. In the light of the above principles, we may now examine the facts in the present case. There is a clear finding by the CIT(A) that the shares were held by the assessee in its normal course of business activities and the dividend income has been considered as earned in course of the business. The learned Departmental Representative has, of course, disputed this finding by saying that one business of the assessee is that of promoting industries in the State by incurring expenditure on projects and which expenditure is converted into shares. The other business is stated to be that of investing upcoming industries by way of subscription to the capital of such companies. It this second activity, which according to the Departmental Representative an investment activity and therefore expenditure incurred to earn dividend income from this second activity has tob e disallowed. I am not agreeable with this proposition of the learned Departmental Representative for two reasons. Firstly, it is well established since the inception of the company that the assessee comp....
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.... has held that the assessee company is engaged in the business of promotion of industries in the State as well as in the business of financing thereon and accordingly would be considered as a credit institution falling within the definition of 'financial company' U/s.2(5B) of Interest Tax Act. The Ld.AR also placed his reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Amalgamations (P) Ltd., reported in 108 ITR 895 wherein it was held as under:- "The question before us is whether the principle, which is applicable to the managing agency companies, can be applied to a company, which is carrying on the business of holding investments. As we have already seen, the decisions of the Supreme Court required a nexus between the business of the assessee and the expenditure that has been incurred. The business of the assessee is the holding of investments. If with reference to this business of the holding of investments any expenditure had been incurred, that would have been allowed as deduction. The business of holding investment and the businesses of the subsidiary companies are wholly separate and distinct. The expenditure that has been incurred in....
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....the assessee so as to justify the deduction of the expenditure incurred in remunerating the directors who rendered services to the subsidiary companies and not to the assessee." (Underlining provided by us) The Ld.AR also placed reliance on the Hon'ble Supreme Court in the case of CIT vs. Cocanada Radhaswami Bank Ltd., reported in 57 ITR 306, wherein it was held: "Though for the purpose of computation of the income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the trading assets." 8. We find that the Ld.DR supported the order of the Ld.CIT passed U/s.263 of the Act, by referring to the relevant observation made by the Ld.CIT that even though the assessee is engaged in the business of promotion of industries in the State by way of making investment in shares in various joint sector undertakings, and thereby the resultant income in the form of dividend thereon would partake the character of business income, the subsequent investment made by the assessee company in those respective joint sector undertakings were not meant for promotion of industries a....