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2014 (6) TMI 41 - AT - Income TaxInclusion of interest income in book profits Computation of salary of partners Allowability of deduction u/s 40(b) of the Act Interest income not within the ambit of section 28 of the Act Held that - Following M/s. BG. Chitale Versus DCIT, Cir-1, Sangli 2010 (9) TMI 986 - ITAT PUNE - The book profit adopted for purpose of calculating the allowable salary/remuneration included interest income - This amount consisted of interest received on FDs with various Banks, MSEB deposits on SD, on other parties and income-tax refund - Before the CIT, the assessee explained that the deposits on which interest has accrued were made out of business compulsion and expediency - CIT did not agree with this explanation and held that there is no direct nexus between the interest income earned by the firm and the business of assessee - the interest income in question ought to have been treated as income from other sources and same should not have been considered for working of the book profit - CIT was of the view that the assessment order to be erroneous and prejudicial to the interest of the Revenue with direction to the AO to modify the order assessing interest income as income from other sources and excluding the interest income while allowing claim of remuneration to partners There was no infirmity in the order of the CIT(A) allowing the claim of the assessee - Decided against Revenue. Obligation to deduct TDS Whether the treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of sec. 194C of the Act - Held that - Following M/s. BG. Chitale Versus DCIT, Cir-1, Sangli 2010 (9) TMI 986 - ITAT PUNE - purchase of milk was predominant factor in the transaction and not the hiring of truck to transport the same to the assessee - the predominant factor in the contract was sale of milk, the contract cannot be turned as for carrying out any work to invoke the provisions of Sec. 194C of the Act CIT was not justified in treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of Sec. 194C of the Act without appreciating that predominant fact behind was purchase/sale of milk Decided against Revenue. Setting of losses prior to initial AY Calculation of deduction u/s 80IA of the Act Held that - Following Preetam Enterprises Versus Jt. CIT Range 1, Kolhapur 2011 (4) TMI 1230 - ITAT PUNE - losses and depreciation of the years earlier to the initial AY which have already been absorbed against the profits of other business cannot be notionally brought forward and set off against the profits of the eligible business for computing the deduction under section 80-IA - Nothing contrary was brought by the revenue thus, the order of the CIT(A) is upheld Decided against Revenue. Deletion made u/s 40(a)(ia) of the Act Non-deduction of TDS on wheeling charges and Computer development and maintenance charges Held that - CIT(A) gave part relief to the assessee on the ground that the assessee has shown that the computer maintenance expenses were incurred towards purchase of consumable items - out of the expenses incurred towards computer development charges, he had given a finding that assessee has deducted tax at source paid to Yantra Automation Pvt. Ltd. for the services done by them - an amount was incurred towards JA Solutions for outright purchase of a graphic design on which VAT was also paid by the assessee and therefore no TDS is deductible from this amount - revenue could not controvert the factual findings given by the CIT(A) thus, there was no infirmity in the order of the CIT(A) deleting the disallowance on account of computer maintenance charges out of the disallowance on account of computer development charges. CIT(A) has given the reasons as to why the provisions of section 194J/194C will not be applicable to the payments made to MSEB on wheeling charges - provisions of section 194J will not be applicable to the assessee company since usage of transmission lines for transmitting power has not resulted into any technical services being rendered to the assessee - the provisions of section 194C will also be not applicable since the payment on transmission and wheeling charges does not involve carrying out of any work and hence would be outside the purview of section 194C - CIT(A) was right in deleting the addition made by the AO on account of wheeling charges paid to MSEB and computer expenses u/s.40(a)(ia) for non-deduction of tax at source Decided against Revenue.
Issues Involved:
1. Inclusion of interest income in book profit for calculating partners' remuneration under Section 40(b) of the Income Tax Act, 1961. 2. Computation of deduction under Section 80IA(5) of the Income Tax Act, 1961. 3. Obligation to deduct tax at source on payments made for truck hire charges under Section 194C of the Income Tax Act, 1961. 4. Disallowance under Section 40(a)(ia) for non-deduction of TDS on wheeling charges paid to MSEB and computer development and maintenance charges. Detailed Analysis: 1. Inclusion of Interest Income in Book Profit for Calculating Partners' Remuneration under Section 40(b): The Assessing Officer (AO) had reduced interest income from book profit while working out remuneration under Section 40(b)(v), treating it as "income from other sources." However, the Commissioner of Income Tax (Appeals) [CIT(A)] directed the AO to include the interest income in book profits for calculating partners' remuneration. The CIT(A) relied on the decision of the ITAT in the assessee's own case for previous years, where it was held that interest income should not be excluded from net profit for computing book profit for determining allowable remuneration to partners. The Tribunal upheld the CIT(A)'s order, noting that the issue had already been decided in favor of the assessee in earlier years. 2. Computation of Deduction under Section 80IA(5): The AO disallowed the deduction under Section 80IA(5) by setting off brought forward depreciation against the profits from the eligible business, resulting in no surplus income for deduction. The CIT(A) allowed the deduction, following the ITAT's decision in the case of M/s Preetam Enterprises and the Madras High Court's decision in Velayudhaswamy Spinning Mills Pvt. Ltd., which held that losses and depreciation of earlier years already absorbed against profits of other businesses cannot be notionally brought forward and set off against the profits of the eligible business. The Tribunal upheld the CIT(A)'s decision, finding no contrary material against the ITAT's and Madras High Court's decisions. 3. Obligation to Deduct Tax at Source on Payments Made for Truck Hire Charges under Section 194C: The AO added back amounts paid for truck hire charges, holding that the provisions of Section 194C were applicable. The CIT(A) deleted the disallowance, following the ITAT's decision in the assessee's own case for A.Y. 2005-06, where it was held that the predominant factor in the transaction was the purchase of milk, not the hiring of trucks, and thus, Section 194C was not applicable. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order. 4. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Wheeling Charges Paid to MSEB and Computer Development and Maintenance Charges: The AO disallowed certain expenses under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) partly allowed the disallowance, noting that the assessee had deducted TDS on some payments and that certain expenses were for outright purchases not requiring TDS. For wheeling charges paid to MSEB, the CIT(A) held that Sections 194J and 194C were not applicable, as the payments did not involve technical services or work contracts. The Tribunal upheld the CIT(A)'s decision, agreeing with the reasoning that the provisions of Sections 194J and 194C were not applicable to the payments in question. Conclusion: The Tribunal dismissed all appeals filed by the Revenue, upholding the CIT(A)'s orders on all issues. The decisions were based on prior rulings in the assessee's own cases and relevant judicial precedents, finding no contrary material to overturn the CIT(A)'s findings.
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