2002 (3) TMI 595 - AT - Income Tax

Summary

Issues:
1. Inclusion of interest and dividend income in profits for deduction under section 32AB.
2. Treatment of service charges for issuing bonus shares as revenue expenditure.

Issue 1: Inclusion of interest and dividend income in profits for deduction under section 32AB

The appeal concerned the eligibility of interest and dividend income for inclusion in the profits of the eligible business for the computation of deduction under section 32AB. The Assessing Officer (AO) reduced a portion of the claimed deduction based on interest and dividend income received by the assessee, contending that these were not part of business income. The contention was that the interest and dividend income arose from business operations and were necessary for carrying on the business, thus forming part of the business profit eligible for deduction under section 32AB. The assessee argued that these incomes had always been treated as business income and were disclosed as such in the published accounts. The Commissioner of Income Tax (Appeals) (CIT(A)) agreed with the assessee, directing the AO to allow the deduction without excluding interest and dividend income. The Revenue challenged this decision.

Issue 2: Treatment of service charges for issuing bonus shares as revenue expenditure

The parties agreed that the disallowance of service charges for issuing bonus shares was confirmed by the CIT(A), rendering the issue misconceived. Therefore, this ground was rejected.

The Tribunal analyzed the provisions of sub-section (3) of section 32AB, which stipulate that profits for deduction shall be computed in accordance with the requirements of Parts II & III of Schedule VI of the Companies Act, 1956. The AO's authority to increase or reduce profits is limited to specified amounts in the provision. Since interest and dividend income were not specifically mentioned in sub-section (3) of section 32AB, the AO had no authority to exclude them from the eligible profit. Citing the decision of the Kerala High Court in CIT v. Apollo Tyres Ltd., the Tribunal held that unless items are explicitly mentioned in the provision, they cannot be excluded. The Tribunal also noted that the Gauhati High Court judgment did not address this issue conclusively. Relying on the consistent view of Mumbai Benches of the Tribunal and the Kerala High Court decision, the Tribunal upheld the CIT(A)'s decision, dismissing the appeal.

In conclusion, the Tribunal dismissed the appeal, affirming the inclusion of interest and dividend income in the profits for deduction under section 32AB and rejecting the challenge to the CIT(A)'s decision. The treatment of service charges for issuing bonus shares as revenue expenditure was not considered due to the agreement between the parties.