2006 (11) TMI 98 - HC - Income Tax

Export AO contended that deduction u/s 80HHC of the ITA,1961 was to be computed after apportionment under rule 8(1) of the ITR,1962 and also assessee not entitle for deduction on the total dividend income u/s 80M Held that AO contention was not correct and allow the assessee appeal

Summary

Issues:
1. Deduction under section 80HHC computation
2. Deduction under section 80M calculation
3. Disallowance of interest and commitment charges
4. Apportionment of business profit
5. Setting aside order by Commissioner of Income-tax
6. Application of section 80HHC

Issue 1: Deduction under section 80HHC computation
The appellant, a company, filed its income tax return for the assessment year 1991-92, showing an income of Rs. 41,82,030. The assessing authority passed an order determining the total income of the company at Rs. 1,16,55,470, holding that the deduction under section 80HHC should be computed after apportionment under rule 8(1) and not from the composite income. The appellant appealed, and the Appellate Tribunal set aside the order of the appellate authority. The High Court referred to a previous decision in Bazaloni Group Ltd. and held that the deduction under section 80HHC should be allowed before apportionment of non-agricultural and agricultural income under rule 8 of the Income-tax Rules, 1962. Consequently, questions related to this issue were answered in favor of the appellant.

Issue 2: Deduction under section 80M calculation
The High Court referred to a decision by the Constitution Bench of the apex court in Distributors (Baroda) P. Ltd. v. Union of India, which clarified the interpretation of section 80M. The court held that relief under section 80M is granted with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount received from the paying company. Based on this interpretation, questions related to the deduction under section 80M were answered against the appellant.

Issue 3: Disallowance of interest and commitment charges
The High Court found that the decision of the Assessing Officer regarding the disallowance of interest and commitment charges was justified, as affirmed by the Tribunal. The questions related to this issue were answered in favor of the Revenue.

Issue 4: Apportionment of business profit
Regarding the apportionment of business profit, the High Court noted that the Assessing Officer had correctly decided the expenses incurred for the manufacture of tea. The court found no question of law arising in this regard.

Issue 5: Setting aside order by Commissioner of Income-tax
The High Court partially allowed the appeal, upholding the decision of the Tribunal regarding the application of section 80HHC in favor of the appellant but answering questions related to other issues in favor of the Revenue. The decision of the Commissioner of Income-tax was not upheld entirely.

Issue 6: Application of section 80HHC
The High Court concluded that questions related to the application of section 80HHC were answered in favor of the appellant based on the precedents and interpretations provided in relevant cases.

This detailed analysis of the judgment covers the various issues involved and the High Court's rulings on each of them, providing a comprehensive understanding of the legal aspects addressed in the case.