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2012 (4) TMI 373 - AT - Income TaxDepreciation - Reclassification of Plant & Machinery as Furniture - the assessee submitted that the assessee engaged in the manufacture of the chemicals and vaccines and for this, the assessee has laboratories - High Court s judgment in the case of CIT v. Park Devis (India) Ltd. (1994 -TMI - 19344 - BOMBAY High Court), is clear on the issue that the functional test has to be applied in deciding if a particular tool constitutes plant and machinery or the furniture - if the Stools, Tables, Stainless Steel racks, SS cupboards, SS trolleys, SS trays etc are required for the laboratory purpose i.e. for the purpose of production or processing of the chemical tests in the laboratory premises leading to the production of the stocks, they must be categorized as plant and machinery - Held that the revenue authorities have carried away more by the nomenclature rather than the functions of the impugned items - Decided in favor of the assessee Regarding depreciation on intangible Asset being non-compete fee - the assessee s submissions in nutshell are that (i) it is the decision of the revenue to treat the said non-compete fee as the capital expenditure and to grant depreciation on the same for the AY 2000-01 and in effect it already entered the block of assets in the AY 2000-01 by virtue of the thrusting by the AO - if the capital expenditure by way of non compete fee in question is an intangible asset and if the same is depreciable asset for the benefits u/s 32 of the Act - ITAT in the case of Asstt. CIT v. Real Image Tech (P) Ltd 2008 -TMI - 69913 - ITAT MADRAS-B - Decided in favor of the assessee. Reduction of Sales tax refund from business profits while computing deduction U/s. 80HHC - held that - AO shall grant relief in this regard Reducing interest income from business profits while computing deduction u/s.80HHC - held that - matter remanded to AO for fresh decision. Regarding deduction u/s. 80HHC - the profit of the EOU unit u/s. 10B forms part of the profits of the business as defined in Explanation (baa) to section 80HHC of the Act for the purpose of determining the allowable deduction under the said section and consequently, the export and total turnover of the said EOU unit are required to be included in the export turnover and total turnover of the assessee as well - the assessee did not include the profit of the EOU unit, Export and Total turnovers in the numerator and denominator of the formula devised for computation of deduction u/s 80HHC and the assessment was completed accordingly - the assessee is of the view that the Tribunal has confirmed the principle of inclusion of the Export turnover in the Denominator of the formula devised for computation of allowable deduction u/s 80HHC. Considering the principle of parity , once a constituent is added to the total turnover, the denominator, the same has to be included to the export turnover , the numerator - Inclusion in profits of business is a wasteful exercise in this case hence, it does not make any difference since the special deductions quantitatively exceeds the available profits and gains of the business of the assessee - Decided in favor of the assessee by way of direction to AO to recompute the deduction u/s 80HHC
Issues Involved:
1. Reclassification of 'Plant & Machinery' as Furniture. 2. Depreciation on 'Intangible Asset' being non-compete fees. 3. Reducing Sales tax refund from business profits while computing deduction U/s. 80HHC. 4. Reducing interest income from business profits while computing deduction U/s. 80HHC. 5. Set off of the unabsorbed depreciation of earlier AYs of TVL. 6. Reducing from the Profit eligible for deduction U/s. 80-HHC a sum of Rs. 6,40,80,683/- being deduction U/s. 80-IA. 7. Inclusion of export turnover of EOU unit in the export turnover of the assessee while computing deduction U/s. 80HHC. 8. Levy of statutory interest U/s. 234B, 234C, and 234D. Issue-wise Detailed Analysis: 1. Reclassification of 'Plant & Machinery' as Furniture: The assessee claimed depreciation on items like stools, tables, stainless steel racks, etc., as 'Plant & Machinery'. The AO reclassified these as 'furniture', applying a lower depreciation rate. The Tribunal applied the 'functional test' from the jurisdictional High Court's judgment in CIT v. Parke Davis (India) Ltd. and Karnataka High Court in Hindustan Aeronautics Ltd v. CIT, concluding that if the items are necessary for production, they should be classified as 'Plant & Machinery'. The Tribunal allowed the assessee's claim. 2. Depreciation on 'Intangible Asset' being non-compete fees: The assessee claimed depreciation on non-compete fees paid to Dr. K K Rao, acquired through amalgamation. The revenue argued that non-compete fees are not depreciable. The Tribunal referred to the Supreme Court's decision in Techno Shares & Stock Ltd. v. CIT, holding that non-compete fees are 'intangible assets' eligible for depreciation. The Tribunal allowed the assessee's claim. 3. Reducing Sales tax refund from business profits while computing deduction U/s. 80HHC: The assessee included sales tax refund in 'profits of the business' for computing deduction U/s. 80HHC. The AO excluded it, citing it as non-operational income. The Tribunal noted that the issue had been settled in favor of the assessee in earlier years and directed the AO to allow the inclusion of the sales tax refund in business profits for computing the deduction. 4. Reducing interest income from business profits while computing deduction U/s. 80HHC: The assessee sought to net off interest paid against interest earned. The Tribunal, referring to the jurisdictional High Court's judgment in CIT v. Asian Star Co Ltd, held that gross interest, not net interest, should be considered for computing deduction U/s. 80HHC. The issue was set aside to the AO for fresh consideration. 5. Set off of the unabsorbed depreciation of earlier AYs of TVL: The assessee did not press this ground. Consequently, it was dismissed as not pressed. 6. Reducing from the Profit eligible for deduction U/s. 80-HHC a sum of Rs. 6,40,80,683/- being deduction U/s. 80-IA: The Tribunal directed the AO to grant relief based on the jurisdictional Bombay High Court's decision in Associated Capsules (P.) Ltd. v. Dy. CIT, which held that deductions U/s. 80-IA should not be excluded from profits of the business while computing deduction U/s. 80HHC. 7. Inclusion of export turnover of EOU unit in the export turnover of the assessee while computing deduction U/s. 80HHC: The assessee argued for including the export turnover of the EOU unit in the export turnover of the business for computing deduction U/s. 80HHC, citing the jurisdictional High Court's decision in Hindustan Unilever Ltd. The Tribunal upheld the principle of parity, directing the AO to include the export turnover of the EOU unit in the export turnover of the business for computing the deduction. 8. Levy of statutory interest U/s. 234B, 234C, and 234D: The Tribunal referred to the Special Bench decision in ITO v. Ekta Promoters (P) Ltd, holding that Section 234D, being substantive, applies prospectively from AY 2004-05. Consequently, interest U/s. 234D could not be charged for AY 2001-02. The Tribunal allowed the assessee's claim for consequential relief on interest U/s. 234B and 234C. Conclusion: The appeal was partly allowed, with the Tribunal directing relief on several grounds based on established legal principles and jurisdictional High Court decisions.
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