2011 (7) TMI 1015 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation Allowance on Windmills
2. Disallowance under Section 14A of the Income-tax Act
3. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax on Payments to Catering Contractors
4. Disallowance under Section 40(a)(i) for Payments to Non-Residents without Deduction of TDS
5. Classification of Rental Income as "Income from House Property" vs. "Income from Business"
6. Disallowance under Section 94(7) of the Income-tax Act
7. Amortization of Preference Share Issue Expenses under Section 35D

Detailed Analysis:

1. Depreciation Allowance on Windmills:
The Revenue challenged the deletion of a depreciation allowance of Rs. 4,67,74,780 made by the Assessing Officer on the grounds that windmills were purchased after the completion of a lease at residual value and depreciation was denied in earlier assessment years. The Tribunal had previously ruled in favor of the assessee for the assessment year 2003-04, confirming the eligibility for claiming such depreciation. Since no contrary evidence was provided for the impugned assessment year, the Tribunal dismissed the Revenue's appeal.

2. Disallowance under Section 14A:
The Revenue contested the deletion of a disallowance of Rs. 30,12,454 made under section 14A for expenses related to earning exempt dividend income. The Assessing Officer applied rule 8D retrospectively, which was later overturned by the Bombay High Court, stating rule 8D could only be applied prospectively from March 24, 2008. However, the Assessing Officer was still allowed to apportion expenses for earlier years. The Tribunal noted that the Assessing Officer and the Commissioner of Income-tax (Appeals) had not verified if any expenditure was incurred directly or indirectly for earning the dividend income. The issue was remitted back to the Assessing Officer for fresh consideration.

3. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax on Payments to Catering Contractors:
The Revenue challenged the deletion of a disallowance of Rs. 62,21,744 for non-deduction of tax on payments made to catering contractors. The assessee argued that the catering contract was a sub-contract under its main drilling contract with ONGC, and thus, only 1% TDS was applicable. The Tribunal agreed with the assessee, stating that the catering services were part of the work undertaken by the assessee through its main contract with ONGC, and thus, the 1% TDS deduction was appropriate. The Revenue's appeal was dismissed.

4. Disallowance under Section 40(a)(i) for Payments to Non-Residents without Deduction of TDS:
The Revenue's grievance was against the deletion of a disallowance of Rs. 2,11,02,509 for payments made to non-residents without proper TDS deduction. The assessee had deducted tax at 4% based on section 44BB, which considers only 10% of the receipts as income. The Tribunal noted that the assessee had a bona fide belief that section 44BB applied and had deducted tax accordingly. The Tribunal upheld the deletion of the disallowance, agreeing with the assessee's interpretation.

5. Classification of Rental Income as "Income from House Property" vs. "Income from Business":
The assessee's appeal contested the classification of rental income from a portion of its building as "income from house property" instead of "income from business." The Tribunal upheld the lower authorities' decision, citing settled law that rental income from letting out a building should be classified as "income from house property," even if letting out property was the object of the assessee-company.

6. Disallowance under Section 94(7) of the Income-tax Act:
The assessee's appeal contested the disallowance of Rs. 91,423 under section 94(7) for short-term capital loss on mutual fund units held for less than three months. The Tribunal upheld the disallowance, noting that the assessee failed to provide evidence that the mutual funds had no record date, which is required to avoid disallowance under section 94(7).

7. Amortization of Preference Share Issue Expenses under Section 35D:
The assessee's appeal contested the denial of amortization of Rs. 4,13,25,000 in preference share issue expenses under section 35D. The Tribunal agreed with the lower authorities that the extension of the industrial undertaking was not complete as the rig purchased with the share capital proceeds was not put to use during the relevant year and was classified as capital work-in-progress. The claim under section 35D was denied for the relevant assessment year.

Summary of Results:
- Appeals of the Revenue in I.T.A. No. 1542/Mds/10 and 1543/Mds/10 are partly allowed for statistical purposes.
- Appeals of the assessee in I.T.A. No. 1381/Mds/10 and 1382/Mds/10 are dismissed.