1993 (11) TMI 78 - AT - Income Tax

Summary

Issues Involved:
1. Nature of income derived post-sale of fixed assets.
2. Set off of unabsorbed depreciation and business losses.
3. Deletion of estimated royalty income.
4. Addition on account of interest income.

Summary:

1. Nature of Income Derived Post-Sale of Fixed Assets:
The assessee, a public limited company, sold its land, building, and machinery in 1980 due to a recession in the textile industry. The company earned income from interest on deferred payments, royalty from a leased trademark, and small-scale trading in cloth. The Assessing Officer assessed these incomes as "Income from other sources" and denied the benefit of carry forward and set off of unabsorbed depreciation and business losses. The CIT (Appeals) concluded that these incomes should be treated as "Profits and gains of business," considering the company's intention to continue business and the nature of the assets as commercial assets.

2. Set Off of Unabsorbed Depreciation and Business Losses:
The CIT (Appeals) held that the unabsorbed depreciation of earlier years could be set off against any income, irrespective of its head, based on the judgment of the Hon'ble Gujarat High Court in CIT v. Deepak Textile Industries Ltd. [1987] 168 ITR 773. This view was confirmed by the Tribunal.

3. Deletion of Estimated Royalty Income:
The CIT (Appeals) deleted the addition of Rs. 10 lakhs made on account of estimated royalty income from the leasing of the trademark "Gopi Fabrics." The Tribunal agreed, noting that since the lessee did not exercise the option to extend the license beyond four years, no such income could be presumed to have accrued.

4. Addition on Account of Interest Income:
The CIT (Appeals) reduced the addition of Rs. 18,14,610 to Rs. 3,82,954, allowing the net interest income after deducting interest on amounts paid by the lessee on behalf of the assessee. The Tribunal restored the matter to the Assessing Officer to decide afresh, considering the contractual obligations and the effect of the dispute settled in the City Civil Court.

Conclusion:
The Tribunal upheld the CIT (Appeals)'s findings on the nature of income, set off of unabsorbed depreciation, and deletion of estimated royalty income. The issue of interest income was remanded to the Assessing Officer for fresh consideration. Both appeals were treated as partly allowed for statistical purposes.