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2015 (1) TMI 834 - HC - Income TaxGuest house expenses - disallowance u/s 37(4) - Held that - Deductibility of guest house expenses under Section 37(4) is concerned it is not disputed that the matter is covered by the decision of the Supreme Court in Britannia Industries Ltd. vs. CIT and Ors., (2005 (10) TMI 30 - SUPREME Court). The question is accordingly answered in terms of the said decision, in favour of the revenue - Decided against the assessee. Interest on FDR, Misc. Receipts and interest from customers on delayed payments - whether be considered for the purpose of Section 80-I of the Act? - Held that - It is not disputed that so far as the first limb i.e. interest received from customers on account of late payment beyond the credit period goes, the matter is covered against the revenue in the decisions of this Court reported as CIT V. Advance Detergents Ltd., (2009 (11) TMI 638 - Delhi High Court) and CIT V. Jackson Engineers Ltd., ( 2009 (12) TMI 649 - Delhi High Court). Accordingly, it is held in favour of the assessee that such interest received from customers due to late payment beyond credit period is permissible as a business income and entitled to benefit under section 80(I). As far as the second limb i.e. interest on FDR, bank guarantees, deposits and miscellaneous receipts are concerned, the benefit of section 80I would be not available in view of the conclusion in CIT V. Shri Ram Honda Power Equipment and Ors., (2007 (1) TMI 86 - HIGH COURT, DELHI). The assessee would be entitled to clam a limited benefit of the expenditure of net interest by application of principles/conclusions Nos 8 and 9 in Shri Ram Honda Power Equipment and Ors. (supra). The matter is remitted to the AO to this limited extent to enable the assessee to prove the nexus as stipulated in Shri Ram Honda Power Equipment and Ors. (supra). - Decided partly in favour of assessee and revenue. Deduction u/s. 32AB - whether available on the profits of industrial undertaking and not on the aggregate profit of the assessee? - Held that - It is pertinent to note that by Finance Act, 1989 the concept of eligible business and determination of profits of eligible business whose accounts have been maintained separately have been done away with prospectively with effect from 1/4/1991. It is true that under Section 70 of the Act, while determining the total income chargeable to tax under the head profits and gains of business , the loss from the agro division has to be set off against the profits of the paper division. However, the said set off is not relevant for the purpose of computing 20% deduction under Section 32AB(1) of the Act, in view of the specific provisions contained in Section 32AB(3)(a) of the Act for determining the profits of each eligible business of the assessee. The amendments made by Finance Act, 1989 applicable from 1st April, 1991. With effect from the said date, the concept of eligible business referred to in Section 32AB was negated. With effect from 1st April, 1991, the provisions of Section 32BA will have to be read and interpreted in light of the said amendments. However, for the assessment years in question under the applicable provisions only the profits of the eligible business can be taken into consideration for computing the deduction under Section 32AB of the Act and aggregation will not be permissible. Decided in favour of the assessee. Interest on debentures, interest on loans and dividend - computation of profits earned by eligible business under Section 32AB - Held that - For the purpose of deduction u/s 32AB, the benefit of said section will be available to all business income from whatever source, other than those mentioned in sub-section (a)(b) of clause (1) of sub sec.(ii) of the said section. Therefore, the view of the CIT (A) that income from other sources will not be considered is not correct in the matter. As such for the purpose of deduction u/s 32AB, the profit of the eligible business are not to be computed in accordance with the provisions of the I.T. Act but are to be computed in accordance with the requirement of sixth schedule to the Companies Act, 1956. Thus as per the findings recorded by the Tribunal, the interest income on debentures and fixed deposits of ₹ 20,775/-, interest on loan and intercorporate deposits amounting to ₹ 86,16,571/- and dividend of ₹ 3,01,460/- were income from business and was accordingly shown in Part II and II of the Sixth Schedule of the Companies Act.The Revenue has not placed any material documents or papers on record to show that the aforesaid finding is wrong and incorrect. Revenue has not placed the complete order under Section 263 on record - Decided in favour of assessee.
Issues Involved:
1. Deductibility of guest house expenses under Section 37(4) of the Income Tax Act. 2. Consideration of interest on Fixed Deposit Receipts (FDR), miscellaneous receipts, and interest from customers for the purpose of Section 80-I. 3. Deduction under Section 32AB based on the profits of the industrial undertaking. 4. Depreciation on guest house expenses. 5. Allowability of expenditure on rent and repairs of the guest house. 6. Consideration of interest on debentures, loans, inter-corporate deposits, and dividend for computing deduction under Section 32AB. Detailed Analysis: 1. Deductibility of Guest House Expenses under Section 37(4): The court addressed whether the Income Tax Appellate Tribunal (ITAT) was correct in deleting the addition of guest house expenses. It was noted that the Supreme Court in Britannia Industries Ltd. vs. CIT had already settled the issue, ruling in favor of the revenue. Thus, the guest house expenses were deemed disallowable under Section 37(4). 2. Consideration of Interest for Section 80-I: The ITAT's decision to include interest on FDR, miscellaneous receipts, and interest from customers for Section 80-I was partially upheld. The court differentiated between the types of interest: - Interest from customers on delayed payments was considered business income and eligible for Section 80-I, as per CIT V. Advance Detergents Ltd. and CIT V. Jackson Engineers Ltd. - Interest on FDRs, bank guarantees, deposits, and miscellaneous receipts was not eligible for Section 80-I benefits, following CIT V. Shri Ram Honda Power Equipment. The matter was remanded to the Assessing Officer (AO) to allow netting of interest. 3. Deduction under Section 32AB: The court examined whether the deduction under Section 32AB should be based on the profits of the industrial undertaking or the aggregate profit of the assessee. The court concluded that the deduction should be computed based on the profits of the eligible business units only, without aggregating losses from other units. This interpretation aligns with the legislative intent and previous rulings, including CIT vs. Canara Workshops (P) Ltd. and CIT vs. Pudumjee Agro Industries Ltd. 4. Depreciation on Guest House Expenses: Similar to guest house expenses, the court ruled that depreciation on guest house expenses is disallowable under Section 37(4), consistent with the Supreme Court's decision in Britannia Industries Ltd. vs. CIT. 5. Allowability of Expenditure on Rent and Repairs of Guest House: The court held that expenditure on rent and repairs of the guest house is disallowable under Section 37(4), following the same rationale applied to guest house expenses and depreciation. 6. Consideration of Interest on Debentures, Loans, Inter-Corporate Deposits, and Dividend for Section 32AB: The court addressed whether these incomes should be included for computing deduction under Section 32AB. The ITAT had previously ruled in favor of the assessee, considering these incomes as part of business income. The court upheld this view, citing the Supreme Court's decision in Apollo Tyres Limited vs. CIT, which allowed such inclusions if they are part of the business operations. The court found no contrary evidence from the revenue to dispute the ITAT's findings. Conclusion: The court's judgment provided a detailed interpretation of the relevant sections of the Income Tax Act, aligning with established legal precedents. The issues were resolved by affirming the ITAT's decisions where applicable and remanding specific matters for further verification by the AO. The appeals were disposed of with no order as to costs.
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