2007 (5) TMI 171 - HC - Income Tax

Depreciation allowable on machinery even if not be used during the year in question ST and CST not includible in the total turnover interest income not part of income from business or profession, hence question of deduction of 90% u/s 80HHC does not arise

Summary

Issues:
1. Whether depreciation under Section 32 of the Income Tax Act, 1961 was allowable on the plant and machinery?
2. Whether Sales Tax and Central Sales Tax can be excluded in the total turnover for the purpose of computation of deduction under Section 80HHC of the Income Tax Act, 1961?
3. Whether interest income earned on FDRs should be considered as part of profits and gains of business for computing deduction under Section 80HHC?

Analysis:

Issue 1:
The court addressed the disallowance of depreciation claimed by the assessee on machinery not used during the assessment year. The Assessing Officer disallowed the claim, but the Tribunal allowed it based on the machinery being kept ready for use and actually used in previous years. The court relied on precedent to support that even if machinery is kept ready for use but not utilized, depreciation is still allowable due to the normal depreciation of value over time. The judgment was in favor of the assessee.

Issue 2:
Regarding the exclusion of Sales Tax and Central Sales Tax from total turnover for deduction under Section 80HHC, the court referred to a previous case where a similar issue was decided in favor of the assessee. Following the precedent, the court answered this question against the revenue and in favor of the assessee.

Issue 3:
The dispute revolved around whether interest income from FDRs should be considered as part of business income for calculating deduction under Section 80HHC. The Assessing Officer treated the interest income as income from other sources, which was upheld by the CIT (A). The Tribunal directed the Assessing Officer to compute interest income for deduction under Section 80HHC as per the relevant clause. The court emphasized that if interest income is not part of business income, there is no basis for deducting 90% of it for Section 80HHC. A previous case was cited to support the position that once income is assessed as business income, it should be considered as such for deduction purposes. The court found in favor of the revenue, setting aside the Tribunal's order on this ground.

In conclusion, the court's judgment addressed each issue raised by the revenue comprehensively, relying on legal precedents and interpretations of relevant sections of the Income Tax Act, ultimately delivering decisions in favor of the assessee in the first two issues and in favor of the revenue in the third issue.