2004 (7) TMI 21 - HC - Income Tax

Section 32AB - CIT exercising power under section 263 had set aside the original assessment by giving directions to the Assessing Officer to reconsider the working of relief/deduction u/s 32AB - Tribunal was right in law in holding that the interest received on temporary deposits with scheduled banks, interest received on deposit for allotment of Maruti car and dividend received from the company are to be excluded while computing the income from eligible business under section 32AB revenue s appeal stands dismissed

Summary

Issues:
- Appeal against the order of the Income-tax Appellate Tribunal regarding the assessment year 1988-89.
- Interpretation of section 32AB of the Income-tax Act for computing income from eligible business.
- Exclusion of interest received on temporary deposits, interest on deposit for Maruti car allotment, and dividend received from the company while computing income.

Analysis:
The judgment delivered by the High Court of Madras pertains to an appeal filed against the order of the Income-tax Appellate Tribunal for the assessment year 1988-89. The case involved the interpretation of section 32AB of the Income-tax Act, 1961, which provides benefits to the assessee for depositing amounts in a development bank or utilizing amounts for the purchase of new machinery or plant. The deduction under this section is allowed before adjusting any losses brought forward from previous years. The computation of business profits under section 32AB(3) requires adherence to the requirements of Parts II and III of Schedule VI to the Companies Act, 1956. The computation includes specific adjustments as outlined in sub-clauses (i) to (vii) and allows for reductions from reserves or provisions credited to the profit and loss account, as established in the case law of CIT v. Tamil Nadu Mercantile Bank Ltd. [2002] 255 ITR 205.

The primary issue raised in the appeal was whether interest received on temporary deposits with scheduled banks, interest on deposits for Maruti car allotment, and dividends received from the company should be excluded while computing income from eligible business under section 32AB of the Income-tax Act. The High Court, following the precedent set by the Division Bench in CIT v. Tamil Nadu Mercantile Bank Ltd., concluded that the aforementioned items should be excluded from the computation of income under section 32AB. The court upheld the decision of the Income-tax Appellate Tribunal and dismissed the appeal filed by the Revenue, thereby affirming that the interest and dividends in question are to be excluded for the purpose of computing income from eligible business under section 32AB of the Income-tax Act.

In summary, the judgment provides a detailed analysis of the application of section 32AB of the Income-tax Act in computing income from eligible business. It clarifies the treatment of specific items such as interest on temporary deposits, interest on deposits for Maruti car allotment, and dividends received from the company in the computation process. The court's decision aligns with established legal principles and precedents, emphasizing the importance of adhering to statutory provisions and case law in determining taxable income for eligible businesses under the Income-tax Act.