1998 (8) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Classification of the sum of Rs. 45,28,899 representing the license premium as income from other sources instead of business income.
2. Disallowance of Rs. 25,000 out of telephone expenses.
3. Charging of interest under section 234B.

Detailed Analysis:

Issue 1: Classification of License Premium
The primary issue was whether the sum of Rs. 45,28,899, representing the license premium, should be classified as income from other sources or business income. The assessee argued that the receipt of the 8% premium falls within the ambit of clause (iiib) of section 28, which states "any cash assistance (by whatever name called) received or receivable by any person against export under any scheme of the Government." The assessee contended that this premium was given to compensate for the increased import costs due to the full convertibility of the rupee and should be considered business income eligible for deduction under section 80HHC.

The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, treating the premium as income from other sources, thereby disallowing the deduction under section 80HHC. The tribunal, however, held that the 8% premium received by the assessee from the government falls under clause (iiib) of section 28 as "cash assistance by whatever name called," thus qualifying as business income. Consequently, the assessee was entitled to the deduction under section 80HHC.

Issue 2: Disallowance of Telephone Expenses
The AO disallowed Rs. 25,000 out of the total telephone expenses of Rs. 1,35,524, attributing Rs. 10,000 to office telephone expenses and Rs. 15,000 to residential telephone expenses, citing personal use by the partners and their family members. The CIT(A) upheld this disallowance. However, the tribunal opined that disallowing expenses for the office telephone was improper but upheld the Rs. 15,000 disallowance for the residential telephone due to personal use. Thus, the addition was sustained to the extent of Rs. 15,000.

Issue 3: Charging of Interest under Section 234B
The assessee's appeal included a ground related to the charging of interest under section 234B. However, no specific arguments were advanced in support of this ground. Consequently, the tribunal dismissed this ground but directed the AO to recalculate the interest chargeable under section 234B after giving effect to the appeal.

Conclusion:
The tribunal partly allowed the appeal, ruling in favor of the assessee on the classification of the license premium as business income and sustaining the disallowance of Rs. 15,000 for telephone expenses. The issue related to the charging of interest under section 234B was dismissed but required recalculation by the AO.