2008 (3) TMI 694 - AT - Income Tax

Computing the book profit u/s 115JA - Addition u/s 201(1A) for delay in deposit of TDS - Disallowed amount received as duty drawback and profit on sale of REP license u/s 80-IA and u/s 115JA - Eligibility for deduction u/s 35 or u/s 37 - contribution made to Ranbaxy Science Foundation(RSF) and Ranbaxy Community Health Care Society(RCHCS) - Sale of scrap will form part of total turnover for computing deduction u/s 80HHC - provision for bad and doubtful debts - proportionate lease rent on oak wood barrels. Computing the book profit under s. 115JA made addition under s. 201(1A) for delay in deposit of TDS - HELD THAT - In the case of Harshad Shantilal Mehta vs. Custodian Ors. 1998 (5) TMI 25 - SUPREME COURT observed that tax, penalty and interest are different concepts under the IT Act, 1961. It was held that the definition of 'tax' under s. 2(43) of the IT Act, 1961 does not include penalty or interest. According to the Hon'ble Court, neither penalty nor interest can be considered tax under s. 11(2)(a) of the IT Act sic-Special Court (Trial of offences) Relating to Transactions in Securities Act, 1992 . It may be pointed out that the ld DR has not been able to show any contrary authority. Hence, following the above authorities, we hold that the learned CIT(A) was not justified in upholding the addition made by the AO in respect of payment of interest under s. 201(1A) while computing book profit under s. 115JA of the IT Act. The issue is, therefore, decided in favour of the assessee. In the result, ground is allowed. Disallowed amount received as duty drawback and profit on sale of REP license u/s 80-IA and u/s 115JA - On going through the order of the Tribunal rendered in AY 1996-97 in assessee's own case, it is found that the Tribunal has considered similar arguments and after following the decision of Hon'ble Delhi High Court in the case of Britannia Industries Ltd. 2005 (10) TMI 30 - SUPREME COURT held that the assessee is not eligible for deduction in respect of duty drawback and profit on sale of REP licenses. In the case of CIT vs. Ritesh Industries Ltd. 2004 (9) TMI 36 - DELHI HIGH COURT , categorically held that amount of duty drawback cannot be regarded as income derived from industrial undertaking. Thus, the issue has to be decided against the assessee. Ground Nos. A2 and B3 are therefore rejected. Eligibility for deduction u/s 35 or u/s 37 - contribution made to Ranbaxy Science Foundation and Ranbaxy Community Health Care Society - establish community based scientific research for control of various endemic diseases - Assessee company, therefore, is directly concerned with the activities of these two organizations, although the organizations have a separate entity of their own. It is true that these organizations have been exempted under s. 11 or under s. 80G but the fact remains that the assessee company is incurring heavy expenditure in maintaining these institutions for its own business purposes and is being directly benefited by their activities. The provisions made by the assessee company cannot be said merely for carrying out philanthropic objects, rather the contributions are directly aimed for promoting business of the assessee company and also for advertising its name because various conferences and workshops are conducted under the banner of the Ranbaxy Laboratories (P) Ltd. Thus, on examination of the nexus between the activities of the foundation and society and those of the assessee company. The issue regarding contribution to various foundations and societies has been considered by various Courts in relation to allowability of deduction of expenditure. In the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT 1996 (10) TMI 2 - SUPREME COURT , after making reference to various decisions, allowed the claim of the assessee In the case of Mahindra Mahindra Ltd. vs. CIT 2003 (1) TMI 71 - BOMBAY HIGH COURT , High Court allowed deduction of expenditure incurred by the assessee in making initial contribution to the approved superannuation fund to an educational society, which was running school for children of employees, as business expenditure under s. 37. It was held that the amount should be allowed as business expenditure because it was incurred predominantly for staff welfare. Therefore, it is clear that even if there is no statutory obligation on the part of the assessee to incur the expenditure, but the expenditure has been incurred to bring goodwill to the assessee or is for the purpose of promoting its business then such expenditure is to be allowed as business expenditure. In view of the above, we uphold the claim of the assessee and allow ground No. 5. Deduction u/s 80HH/80-IA - profits derived from goods manufactured on loan license basis - manufacture of drugs and pharmaceuticals - HELD THAT - It was pointed out by the learned counsel for the assessee that in earlier year i.e. AY 1991-92 in assessee's own case the Tribunal has confirmed the order of the learned CIT(A) in setting aside the issue and in directing the AO to consider the claim of the assessee. Both the sides agreed before us that the same course should be adopted in this assessment year also. It could not be pointed out as to what happened to the directions of the Tribunal and what is the final outcome. Since position could not be ascertained and further since neither the AO nor the learned CIT(A) have considered the relevant facts nor carried out further examination or inquiry we consider it proper to restore the matter back to the file of AO to decide the issue afresh after examining all relevant aspects and as per law, of course, after providing opportunity of being heard to the assessee. Consequently, order of the learned CIT(A) is set aside and the ground is allowed for statistical purposes. Sale of scrap will form part of total turnover for computing deduction u/s 80HHC - we have gone through the order of the Tribunal rendered in assessee's own case for AY 1996-97, wherein after considering various authorities it has been held that sale of scrap is not to be included in total turnover for the purposes of computing deduction u/s 80HHC. The ld DR has not been able to point out any decision of jurisdictional High Court in favour of the Revenue. As the issue stands covered in favour of the assessee by the earlier decisions of the Tribunal in the case of the assessee itself, respectfully following the same, we uphold the claim of the assessee and allow the ground in assessee's favour. Ground is allowed. In the result, assessee's appeal stands partly allowed as indicated above. Computation of book profit under s. 115JA - provision for bad and doubtful debts - In the case of CIT vs. HCL Comnet Systems Services 2007 (5) TMI 203 - DELHI HIGH COURT , the assessee had made provision for bad and doubtful debts in its P L a/c for AY1997-98. The Hon'ble High Court while dismissing the appeal, held as under ''there was no reason why a bad and doubtful debt claimed by the assessee could not be treated as an ascertained liability. If the debts that were bad and doubtful should have been written off, then cl. (c) of the Explanation to s. 115JA would become completely inoperative and otiose, which was not the intention of the legislature. Thus, the issue is decided in favour of the assessee. Ground fails. Exclude the proportionate lease rent on oak wood barrels leased to M/s Khodey Distillery Ltd. - On going through the order of the Tribunal in the case of Crosslands Research Lab Ltd. (supra), it is found that the order of the learned CIT(A) has been affirmed wherein the total cost of wooden barrel worked out. Consequently, the view taken by the learned CIT(A) in the present appeal for present assessment year which is based on the order of the learned CIT(A) in the case of Crosslands Research Lab Ltd. for AY 1995-96 is fully justified. Accordingly, order of the learned CIT(A) on the issue in question is upheld. Ground fails. In the result, assessee's appeal is partly allowed, in the manner as indicated above and the appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Addition of interest under Section 201(1A) for delayed TDS deposit in book profit computation under Section 115JA.
2. Deduction under Section 80-IA on duty drawback and profit on sale of REP licenses.
3. Disallowance of expenses related to guest house.
4. Deduction of contributions to Ranbaxy Science Foundation and Ranbaxy Community Health Care Society under Section 37.
5. Deduction under Section 80HH/80-IA on profits from goods manufactured on loan license basis.
6. Inclusion of sale of scrap in total turnover for deduction under Section 80HHC.
7. Inclusion of provision for bad and doubtful debts in book profit computation under Section 115JA.
8. Depreciation rate on leased trucks.
9. Exclusion of principal amount received from RSEB from taxable income.
10. Exclusion of miscellaneous receipts, sale of scrap, and taxes from total turnover for deduction under Section 80HHC.
11. Exclusion of proportionate lease rent on oak wood barrels leased to M/s Khoday Distillery Ltd.

Detailed Analysis:

1. Addition of Interest under Section 201(1A) for Delayed TDS Deposit in Book Profit Computation under Section 115JA:
The issue revolved around whether interest paid under Section 201(1A) for delayed TDS deposit should be added to book profit under Section 115JA. The Tribunal held that the term "income-tax" under Section 115JA does not include interest, following the definition under Section 2(43) and several judicial precedents, including Harshad Shantilal Mehta vs. Custodian & Ors. and Insilco Ltd. vs. Jt. CIT. The Tribunal concluded that the addition of Rs. 1,06,146 was not justified and decided in favor of the assessee.

2. Deduction under Section 80-IA on Duty Drawback and Profit on Sale of REP Licenses:
The assessee claimed deductions under Section 80-IA for duty drawback and profit on sale of REP licenses. The Tribunal referred to the decision of CIT vs. Sterling Foods and CIT vs. Ritesh Industries Ltd., concluding that such amounts cannot be considered as profits derived from an industrial undertaking. The Tribunal upheld the CIT(A)'s decision to allow duty drawback but disallowed the profit on sale of REP licenses.

3. Disallowance of Expenses Related to Guest House:
The Tribunal noted that the issue of disallowance of expenses related to the guest house was already decided against the assessee in the previous assessment year, following the Supreme Court's decision in Britannia Industries Ltd. vs. CIT. The ground was rejected.

4. Deduction of Contributions to Ranbaxy Science Foundation and Ranbaxy Community Health Care Society under Section 37:
The Tribunal examined the nature of contributions made to RSF and RCHCS, concluding that these were made for promoting business interests and earning goodwill. The Tribunal referred to several judicial precedents, including Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT and Mysore Kirloskar Ltd. vs. CIT, and allowed the deduction as business expenditure under Section 37.

5. Deduction under Section 80HH/80-IA on Profits from Goods Manufactured on Loan License Basis:
The Tribunal restored the matter to the AO for fresh examination, noting that similar directions were given in the earlier assessment year.

6. Inclusion of Sale of Scrap in Total Turnover for Deduction under Section 80HHC:
The Tribunal followed its earlier decision in the assessee's case for the previous year, holding that sale of scrap should not be included in total turnover for computing deduction under Section 80HHC. The ground was allowed in favor of the assessee.

7. Inclusion of Provision for Bad and Doubtful Debts in Book Profit Computation under Section 115JA:
The Tribunal upheld the CIT(A)'s decision, following the Delhi High Court's judgment in CIT vs. HCL Comnet Systems & Services, which held that provision for bad and doubtful debts should not be included in book profits under Section 115JA.

8. Depreciation Rate on Leased Trucks:
The Tribunal upheld the CIT(A)'s decision to allow depreciation at 40% on leased trucks, following the Delhi High Court's decisions in CIT vs. Bansal Credits Ltd. and CIT vs. M.G.F. (India) Ltd..

9. Exclusion of Principal Amount Received from RSEB from Taxable Income:
The Tribunal agreed with the CIT(A)'s decision to exclude the principal amount received from RSEB from taxable income, noting that only the interest component should be taxed.

10. Exclusion of Miscellaneous Receipts, Sale of Scrap, and Taxes from Total Turnover for Deduction under Section 80HHC:
The Tribunal followed its earlier decision, holding that miscellaneous receipts, sale of scrap, and taxes should not be included in total turnover for computing deduction under Section 80HHC.

11. Exclusion of Proportionate Lease Rent on Oak Wood Barrels Leased to M/s Khoday Distillery Ltd.:
The Tribunal upheld the CIT(A)'s decision to exclude the proportionate lease rent on oak wood barrels, following the earlier decision in the case of Crosslands Research Lab Ltd.

Conclusion:
The Tribunal's detailed analysis addressed each issue comprehensively, often referring to prior judicial decisions and the principles established therein. The appeals were disposed of with some grounds allowed in favor of the assessee and others upheld as per the CIT(A)'s findings.