2017 (5) TMI 428 - HC - Income Tax

Eligibility to claim deduction under Section 80HHD(1)- preemptive utilization of the reverse - whether Income Tax Appellate Tribunal was justified in holding that there was a preemptive utilization of the reverse and, therefore, the appellant was not eligible to claim deduction under Section 80HHD(1) - Held that - The sub-clause (4) is very clearly. The reserve of the previous year as shown on 31st March 1999 can be utilised for the benefit of Section 80HHD and reserved amount for the current year cannot be utilised for the same year. It has to be utilised in the subsequent year and before the expiry of the period of five years and sub-clause (4) contemplates for non utilization of reserve fund which can be taxed only on completion of five years of the assessment year. Therefore, the view taken by the Tribunal is just and proper. - Decided against the assessee.

Issues Involved:
1. Justification of the Income Tax Appellate Tribunal's decision regarding preemptive utilization of the reserve and eligibility for deduction under Section 80HHD(1).
2. Justification of the Tribunal's decision on disallowance to the assessee and application of Section 80HHDD(4) & (5) of the Income Tax Act.

Detailed Analysis:

Issue 1: Preemptive Utilization of the Reserve and Eligibility for Deduction under Section 80HHD(1)

The appellant challenged the Tribunal's judgment, which partly allowed the department's appeal by reversing the CIT(A)'s view. The substantial question of law framed was whether the Tribunal was justified in holding that there was a preemptive utilization of the reserve, thus disqualifying the appellant from claiming deduction under Section 80HHD(1).

The appellant argued that the Tribunal misinterpreted sub-clause (4) of Section 80HHD. Sub-clause (4) specifies that the amount credited to the reserve account must be utilized within five years for specific purposes, such as constructing new hotels, purchasing new cars, sports equipment, or constructing conference centers. The appellant contended that similar language in Section 32A was interpreted differently, and the Tribunal's interpretation was erroneous.

The Tribunal's decision was based on the interpretation that the reserve amount for the current year cannot be utilized in the same year, but must be utilized in subsequent years within the five-year period. The Tribunal concluded that the appellant's utilization of the reserve in the same year it was credited was not permissible under Section 80HHD(1).

Issue 2: Disallowance to the Assessee and Application of Section 80HHDD(4) & (5)

The second substantial question of law was whether the Tribunal was justified in holding that no disallowance could be made to the assessee in the year under consideration, even if there was no utilization of the reserve, thereby not properly applying Section 80HHDD(4) & (5).

The appellant argued that sub-clause (5) allows for the charging of amounts utilized even during the same year they were credited to the reserve account. The appellant cited decisions from other courts, including the Punjab and Haryana High Court, to support their interpretation that the reserve amount should not be taxed in the year it was credited if utilized for the specified purposes within the five-year period.

The Tribunal, however, held that the reserve amount for the previous year could be utilized for the benefit of Section 80HHD, but the reserved amount for the current year could not be utilized in the same year. It must be utilized in subsequent years before the expiry of five years. The Tribunal found that the CIT(A) had wrongly interpreted the provisions of Section 80HHD(4) & (5) and that the Assessing Officer's decision to allow the deduction to the extent of ?71,23,244/- was correct.

Conclusion:

The High Court upheld the Tribunal's view, stating that the reserve amount for the current year must be utilized in subsequent years within the five-year period, and not in the same year it was credited. The court found the Tribunal's interpretation of Section 80HHD(4) & (5) to be just and proper. Consequently, the issues were answered in favor of the department and against the assessee, and the appeal was dismissed.

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