2018 (11) TMI 1556 - HC - Income Tax

Deduction under section 80HHC - whether assessee s business in the purchase and sale of units and its business in the manufacture and sale of tyres constituted one and the same business? - Held that - Issue covered by the decision of this Court, in favour of the assessee, in C.I.T. v. Appollo Tyres Ltd. 1998 (8) TMI 68 - KERALA HIGH COURT , as confirmed by the Hon ble Supreme Court 2002 (5) TMI 5 - SUPREME COURT Amount of deduction u/s 80HHC - whether should be worked out on the basis of book profits even though as per sub-section 3 of section 80 HHC, this has to be allowed on the basis of normal profits - Held that - Issue covered in favour of the assessee by the decision of the Hon ble Supreme Court in C.I.T. v. Bhari Information Tech. Sys.P.Ltd. 2011 (10) TMI 19 - SUPREME COURT OF INDIA . MAT computation - revaluation reserve account for adjusting the depreciation should be allowed as deduction while computing the book profits - Held that - The assessee in the previous assessment year on a revaluation of its assets, credited an amount to the revaluation reserve account. In the current assessment year, the assessee debited ₹ 2,72,43,385/- from the revaluation reserve account and adjusted the depreciation arising in the said year. In fact, this should have been shown in the profit and loss accounts as a profit, which the assessee did not; but, however, adjusted to depreciation, which has the same effect. In fact, if the assessee had added on the said amounts to the profit, then under Section 115J Minimum Alternate Tax (MAT) the said amounts would be allowed as deduction under Section 115J. The Assessing Officer, however, found that the profit having not been added on, there could be no deduction claimed. The Assessing Officer, hence, added on the said amounts to the profit for assessment under MAT. The first appellate authority and the Tribunal found that there is no ground to decline such exemption to the assessee, merely for the fact that the same was not shown in the profit. The deduction which is permissible under the Act could not have been disallowed. - Decided in favour of the assessee and against the Revenue.

Summary

Issues:
1. Whether the assessee's business in the purchase and sale of units and the manufacture and sale of tyres constituted one business.
2. Calculation of deduction under section 80HHC based on book profits or normal profits.
3. Allowance of the amount withdrawn from the revaluation reserve account for adjusting depreciation while computing book profits.
4. Treatment of dividend income in computing profits of eligible business under section 32AB of the Income Tax Act.
5. Consideration of income from Unit Trust of India in computing eligible profits and whether the two activities of the assessee form part of the same business.

Analysis:
1. The High Court considered questions related to the nature of the assessee's business activities. It was determined that the business of the assessee in the purchase and sale of units and the manufacture and sale of tyres constituted one business. The Tribunal's decision in this regard was upheld based on previous legal precedents.

2. The issue of calculation of deduction under section 80HHC was addressed. It was clarified that the deduction should be worked out on the basis of book profits, as confirmed by legal precedents. The Court referred to specific judgments supporting this interpretation.

3. The Court analyzed the allowance of the amount withdrawn from the revaluation reserve account for adjusting depreciation while computing book profits. It was established that the deduction permissible under the Act could not be disallowed merely because the amount was not shown in the profit. The Court affirmed the findings of the first appellate authority and the Tribunal in favor of the assessee.

4. Regarding the treatment of dividend income in computing profits under section 32AB, the Court ruled in favor of the assessee. It was held that the dividend income should be excluded in computing the profits of the eligible business. The Court provided a detailed analysis based on the provisions of the Income Tax Act.

5. The Court addressed the consideration of income from Unit Trust of India in computing eligible profits and whether the two activities of the assessee formed part of the same business. It was concluded that the income from Unit Trust of India should be considered along with other income in computing eligible profits. The Court affirmed that both activities of the assessee constituted the same business, and the provisions of the Income Tax Act were not applicable in this scenario.

In conclusion, the High Court's judgment favored the assessee on all the questions of law referred, providing detailed analyses and legal interpretations for each issue involved in the case.