2005 (7) TMI 285 - AT - Income Tax

Summary

Issues Involved:
1. Grant of depreciation under Section 32 before computing the deduction allowable under Section 80-IA.
2. Disallowance of lease rental paid for machinery taken on lease.
3. Computation of book profit for the purpose of Section 115JA without deducting the income eligible for deduction under Section 80-IA.

Detailed Analysis:

1. Grant of Depreciation under Section 32 before Computing Deduction Allowable under Section 80-IA:

The primary issue was whether depreciation should be applied to the assessee before computing the deduction under Section 80-IA, even if the assessee did not claim such depreciation in the computation of income. The Tribunal referenced the case of Plastiblends India Ltd. vs. ITO, where it was decided that depreciation should not be forced upon the assessee if not claimed. This was contrasted with the Bombay High Court's decision in Indian Rayon Corpn. Ltd. vs. CIT, which held that depreciation must be given before computing the deduction under Section 80-IA.

The Tribunal noted that the Supreme Court's decision in Mahendra Mills established that depreciation cannot be thrust upon an assessee if not claimed. The Tribunal found that the facts of the present case were different from those in Indian Rayon Corpn. Ltd., as the assessee had not claimed depreciation. The Tribunal concluded that the deletion of Section 34 did not change the legal position that depreciation cannot be forced upon the assessee if not claimed. Consequently, the Tribunal directed the AO not to allow depreciation before computing the deduction under Section 80-IA.

2. Disallowance of Lease Rental Paid for Machinery Taken on Lease:

The second issue was the disallowance of lease rental paid by the assessee to M/s Rajasthan Syntex Ltd. for machinery taken on lease. The Revenue authorities had disallowed the lease rental, considering the transaction as merely financial, implying that the assessee was the owner of the assets and not entitled to claim lease rental as a deduction.

The Tribunal referenced its previous decision in the assessee's own case for the assessment year 1997-98, where the leasing of the machinery was held to be genuine. The Tribunal reaffirmed that the transaction was indeed a lease transaction, and the payment made by the assessee was towards lease rental, not repayment of a loan. The Tribunal directed the AO to grant the deduction of lease rentals.

3. Computation of Book Profit for the Purpose of Section 115JA without Deducting Income Eligible for Deduction under Section 80-IA:

The third issue involved the computation of book profit under Section 115JA. The assessee, an industrial undertaking entitled to a 100% deduction under Section 80-IA, argued that while computing book profit, the AO should have excluded the deduction admissible under Section 80-IA, resulting in "nil" book profit.

The Tribunal examined Section 115JA and its Explanation, which defines "book profit" and includes provisions for increasing and reducing net profit for specific items. Clause (vi) of the Explanation provides for the exclusion of profits derived by an industrial undertaking eligible for deduction under Section 80-IA. Since the assessee was entitled to a 100% deduction, the Tribunal concluded that the book profit should be "nil." The Tribunal directed the deletion of the demand raised by the AO.

Conclusion:

The Tribunal allowed the appeal of the assessee on all grounds:
- Depreciation should not be thrust upon the assessee if not claimed.
- Lease rental payments were genuine and deductible.
- Book profit under Section 115JA should be computed as "nil" due to the 100% deduction under Section 80-IA.