2018 (1) TMI 1557 - HC - Income Tax

Deduction u/s 10B -Tribunal held that Head Office expenses cannot be allocated to profits derived from 100% export oriented units falling u/s 10B - HELD THAT - Issue stands concluded in favour of the Respondent Assessee and against the Appellant Revenue. This in view of the decision of this Court passed today on an identical question in Income Tax Appeal 2018 (1) TMI 900 - BOMBAY HIGH COURT in respect of the same Respondent Assessee relating to assessment year 2002- 03. Head Office expenses allocation to deduction claimed un/S 80IA and 80IB when these units are managed/controlled by the Head Office - HELD THAT - Tribunal has allowed the Appeal of the Respondent Assessee by following the order of its co ordinate bench in respect for assessment year 2002 -03 by applying its rationale to disallow the allocation of head office expenses to profits derived from 100 percent export oriented units falling under Section 10B of the Act. The same reasoning was extended to hold that the head office expenses cannot be allocated out of profits derived from units claiming deduction under Section 80IA and 80IB of the Act. Revenue is unable to show why the adoption of the reasoning to disallow allocation of profits of Section 10 B units to head office expenses cannot be extended to profits of Section 80 IA and 80 IB units. Appeal of the Revenue from the order of the Tribunal for assessment year 2002 -03 to this Court 2018 (1) TMI 900 - BOMBAY HIGH COURT against the same Respondent Assessee on the issue of allowing head office expenses to profits derived under Section 10B of the Act was disallowed today by a separate order in Income Tax Appeal No.311 of 2005. In the absence of the Revenue's not being allowed to show why the same logic would not extend to units claiming deduction under Section 80IA and 80IB of the Act, we are following the same. Claim of depreciation on 'goodwill', when the assessee had not claimed it in the return of income - HELD THAT - Issue herein was also raised by the Revenue in 2018 (1) TMI 900 - BOMBAY HIGH COURT in respect of the same Respondent Assessee relating assessment year 2002- 03. We have by an order passed today not entertained the Income Tax Appeal on this issue / question. Accordingly, for the reasons mentioned in our order passed today this question does not give rise to any substantial question of law. Thus, not entertained. Appeal admitted on question 1 - Whether on the facts and circumstances of the case and in law, the Tribunal was right in allowing the provision for leave salary when the Hon'ble Supreme Court decisions relied on by Tribunal were delivered before the introduction of Section 43B(f) and the judgment of the Calcutta High Court has been stayed by the Apex Court?

Summary

Issues:
1. Allowance of provision for leave salary
2. Allocation of Head Office expenses to profits derived from export-oriented units
3. Allocation of Head Office expenses to deductions claimed under Section 80IA and 80IB
4. Claim of depreciation on 'goodwill'

Analysis:

1. Provision for Leave Salary:
The Appeals challenge the Tribunal's order allowing the provision for leave salary for the assessment years 2004-05 and 2003-04. The primary question raised is whether the Tribunal was correct in allowing this provision based on Supreme Court decisions predating the introduction of Section 43B(f) and the status of a judgment from the Calcutta High Court. The judgment does not delve into this issue further.

2. Allocation of Head Office Expenses to Export-Oriented Units:
The Revenue contested the allocation of Head Office expenses to profits derived from 100% export-oriented units under Section 10B and deductions claimed under Section 80IA and 80IB. The Tribunal's decision, following a similar ruling for the assessment year 2002-03, favored the Assessee. The Court upheld this decision, emphasizing the lack of justification from the Revenue on why the same rationale should not apply to units under Section 80IA and 80IB.

3. Allocation of Head Office Expenses to Deductions under Section 80IA and 80IB:
Continuing from the previous issue, the Tribunal's order disallowed the allocation of Head Office expenses to profits derived from units claiming deductions under Section 80IA and 80IB. The Court's decision aligned with the earlier ruling on Section 10B units, highlighting the Revenue's failure to present a compelling argument against extending this logic to other units.

4. Claim of Depreciation on 'Goodwill':
The question of allowing the claim of depreciation on 'goodwill' was raised, with the Court noting that a similar issue was addressed in a previous appeal for the assessment year 2002-03. Following the decision made in that appeal, the Court did not entertain this question, indicating that it did not give rise to any substantial question of law.

In conclusion, the Court admitted the Appeals on the substantial question of law related to the provision for leave salary, while rejecting the other questions based on the reasoning provided in separate orders for similar issues in previous appeals. The Respondents waived service, and the Registry was directed to communicate the order to the Tribunal for further proceedings.