2012 (8) TMI 950 - HC - Income Tax

Proportionate premium in respect of redemption of debentures Computation of deduction under Section 80HHC and under Section 80-IA Compensation in respect of a lease hold land Dividends from domestic companies being the interest attributed to earning of this dividend income for the purpose of allowing exemption under Section 10(33) Allowable business expenditure

Issues Involved:

1. Proportionate premium on redemption of debentures.
2. Deduction of premium paid on redemption of debentures.
3. Inclusion of foreign exchange attrition in export turnover for Section 80HHC deduction.
4. Exclusion of local sales turnover for Section 80HHC deduction.
5. Deduction under Section 80-O for royalty received.
6. Depreciation on leasehold land.
7. Expenditure for Techno Economical Feasibility Study.
8. Deduction under Section 80-I for industrial undertakings.
9. Allowance under Section 36(1)(iii) for funds used in tax-free bonds.
10. Allowance of commission paid to stockists as business expenditure.
11. Allowance of loss due to exchange rate difference as business loss.
12. Interest paid on loans for expansion projects under Section 36(1)(iii).
13. Disallowance under Section 40A(2) for payments to directors and ex-employees.
14. Exclusion of net interest and rent for Section 80HHC deduction.
15. Deduction under Section 80-IA for power units.
16. Disallowance of interest attributed to earning dividends for Section 10(33) exemption.
17. Allowance of expenditure for Aditya Birla Scholarships.
18. Allowance of expenditure paid to Price Water House Coopers Ltd.

Detailed Analysis:

Re: Questions A & B:
The issue pertains to the allowance of proportionate premium on redemption of debentures. The court referenced the Supreme Court judgment in Madras Industrial Investment Corporation Limited v. CIT (225 ITR 802), which supports the respondent's claim. Consequently, Question (B) regarding the deduction of the entire premium does not arise unless the respondent's eligibility for proportionate premium is negated.

Re: Question E:
The deduction under Section 80-O for royalty received from a foreign company was upheld, as the Tribunal had allowed it in previous years without objection from the department. This issue was also dismissed in a prior appeal for the assessment year 1996-97, thus not raising a substantial question of law.

Re: Question F:
The respondent's claim for compensation paid for leasehold land was accepted on an alternative ground, and the appellant did not seriously contest this issue. Therefore, no substantial question of law arises.

Re: Question G:
The Tribunal found a close nexus between the business and the feasibility study, justifying the expenditure as revenue in nature. This finding was based on evidence and was not deemed perverse, thus not raising a substantial question of law.

Re: Question H:
The respondent's counsel stated that there was no profit in the relevant activities, rendering the question academic. Hence, it was not necessary to consider whether it raised a substantial question of law.

Re: Questions I & J:
These issues were previously decided in favor of the respondent in the department's appeal for the assessment year 1996-97 and subsequent years. The revenue accepted the CIT (Appeals) decision, thus not raising a substantial question of law.

Re: Question K:
The issue of loss due to exchange rate difference was answered against the appellant by the Supreme Court in CIT v. Woodward Governor India Private Limited (312 ITR 254).

Re: Question M:
The question of interest paid on loans for expansion projects was covered against the department by Supreme Court judgments in Dy. CIT v. Core Health Care Limited (298 ITR 194), Asstt. CIT v. Arvind Polycot Limited (299 ITR 12), and Jt. CIT v. United Phosphorous Limited (299 ITR 9).

Re: Question N:
The Tribunal allowed similar payments to the same employee in previous years, and the appellant provided no reasons for a different view for the assessment year in question. This issue was thus not contested.

Re: Question O:
The appeal was admitted only concerning rent exclusion for Section 80HHC deduction. The interest exclusion issue was covered in favor of the respondent by the Supreme Court decision in ACG Associated Capsules Pvt. Ltd. v. CIT (2012) 67 D.T.R. 205.

Re: Question V:
No deduction was claimed for the assessment year in question, making the issue academic. Therefore, it was not considered.

Re: Question Y:
The Tribunal found that the expenditure for Aditya Birla Scholarships was primarily for advertisement purposes, classifying it as revenue in nature. This finding was not perverse, thus not raising a substantial question of law.

Re: Question Z:
The Tribunal determined that the payment to PWHC Limited was for improving existing information systems, classifying the expenditure as revenue in nature. This finding was not perverse, thus not raising a substantial question of law.

Conclusion:
The appeal was dismissed for issues raised in Questions A, B, E, F, G to K, M, N, O (partly), V, Y, and Z. The appeal was admitted for issues raised in Questions C, D, O (partly), P to U, W, and X, subject to the observations made.

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