1995 (3) TMI 129 - AT - Income Tax

Summary

Issues:
Claim for deduction on account of deposit in Investment Deposit Account under section 32AB.

Analysis:
The appeal concerned the rejection of a claim for deduction on account of a deposit in the Investment Deposit Account under section 32AB. The assessee, engaged in a proprietary manufacturing business incurring a loss, also received profits from a registered partnership firm. The tax authorities rejected the deduction claim, stating that the share of profit from the firm could not be considered for the claim. The Appellate Tribunal analyzed the provisions of section 32AB introduced by the Finance Act, 1986, allowing a deduction up to 20% of profits if deposited within the prescribed period. The Tribunal noted that the business activities of both the proprietary concern and the firm met the conditions of an "eligible business." The Tribunal emphasized that profits and gains from various business sources must be aggregated under section 28 for taxation purposes. It was highlighted that a partner's share of profit in a registered firm is considered profit under section 28. Thus, the assessee should be entitled to the deduction under section 32AB.

The legislative intent behind section 32AB was examined by the Tribunal. It was observed that the scheme intended the firm, not the partner, to claim the deduction under section 32AB. This distinction aimed to replace the earlier investment allowance scheme, where only the firm received the incentive. The Tribunal noted that an amendment clarified that the deduction under section 32AB should only be allowed in the assessment of the firm and not in the hands of the partner concerning the firm's business income. Despite the assessee's argument that as a partner, they were entitled to claim the deduction, the Tribunal interpreted the amendment's language, emphasizing that no deduction was intended for the partner's share of profits from a registered firm. The Tribunal upheld the legislative intent as reflected in the proviso to section 32AB, which explicitly excluded the partner's share of profits from the firm for computing the deduction.

In conclusion, the Appellate Tribunal dismissed the appeal, upholding the rejection of the deduction claim on the deposit in the Investment Deposit Account under section 32AB. The Tribunal's decision was based on the legislative intent and the specific language of the amendment, which clarified that the deduction was intended for the firm, not the partner, in the context of the Investment Deposit Account scheme.