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2004 (9) TMI 90 - HC - Income TaxEligibility of deduction u/s 32AB - whether the income derived under the head Income from business or profession only would be eligible for deduction u/s 32AB(1)(ii) or this deduction would be allowable on the income of the eligible business contemplated under s.s. (3) of section 32AB. - Tribunal had held against the assessee that the income derived under the head Profits and gains of business or profession only would be eligible Held that the income as computed under Parts II and III of the 1956 Act in respect of the income out of the eligible business would be the basis on which this deduction is allowed irrespective of the fact as to under what head a particular income will fall for the purpose of computation of income under the 1961 Act.
Issues Involved:
1. Eligibility of deduction under section 32AB of the Income-tax Act, 1961. 2. Interpretation of "profits of eligible business" versus "profits and gains of business or profession". 3. Applicability of precedents and judicial interpretations. Detailed Analysis: 1. Eligibility of Deduction under Section 32AB: The primary issue revolves around whether the deduction under section 32AB should be allowed on the income derived under the head "Income from business or profession" or if it includes income from other sources. The Tribunal held that only income under "Profits and gains of business or profession" is eligible, following precedents from Northern India Theatre P. Ltd., and CIT v. Dinjoye Tea Estate (P.) Ltd. 2. Interpretation of "Profits of Eligible Business" Versus "Profits and Gains of Business or Profession": Dr. Pal, representing the assessee, argued that section 32AB has two distinct components: eligibility criteria for availing the deduction and eligibility of the deduction itself. He contended that once the assessee qualifies under section 32AB(1)(a)(b), the deduction under section 32AB(1)(i) and (ii) should be computed as per section 32AB(3), which includes profits of eligible business, not limited to "Profits and gains of business or profession". He cited Apollo Tyres Ltd. v. CIT and other cases to support his argument that the profits of eligible business should not be equated to the profits chargeable under the head "Profits and gains of business". On the other hand, Mr. Agarwal, representing the Commissioner of Income-tax, argued that the eligibility for deduction should be confined to income under "Profits and gains of business or profession". He emphasized that the computation method in section 32AB(3) does not override the eligibility requirements in sub-sections (1) and (2). 3. Applicability of Precedents and Judicial Interpretations: The court analyzed section 32AB as it stood for the assessment year 1988-89. It noted that the eligibility criteria in section 32AB(1) refer to deposits or utilization of amounts from "Profits and gains of business and profession". However, the deduction part in section 32AB(1)(ii) refers to "profits of eligible business or profession", which is defined in section 32AB(2) and computed as per section 32AB(3). The court highlighted that the distinction between eligibility to deduction and eligibility of deduction is crucial. It referred to precedents, including CIT v. Nawn Estate P. Ltd., O.RM.M.SP.SV. Firm v. CIT, CIT v. Cocanada Radhaswami Bank Ltd., and Apollo Tyres Ltd. v. CIT, which supported the view that the profits of eligible business should include income irrespective of the head under which it falls. Conclusion: The court concluded that section 32AB(1), (2), and (3) collectively indicate that once an assessee qualifies under section 32AB(1)(a) and (b), the deduction should be allowed on the profits of eligible business computed as per the Companies Act, irrespective of the head under which the income falls. The decision in Apollo Tyres Ltd. was deemed to be the guiding precedent, overruling the earlier decisions of the Gauhati and Calcutta High Courts in Dinjoye Tea Estate (P.) Ltd. and Warren Tea Ltd. Order: The appeal was allowed, modifying the Tribunal's order. The assessee is entitled to a deduction of 20% of the profits of eligible business computed under section 32AB(3) in accordance with the Companies Act. The income computed under Parts II and III of the Companies Act will be the basis for this deduction, irrespective of its classification under the Income-tax Act. There was no order as to costs, and a Xerox certified copy of the judgment was made available to the parties upon application.
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