1999 (3) TMI 109 - AT - Income Tax

Summary

Issues:
- Interpretation of deduction under section 32AB of the Income-tax Act.
- Eligibility of share income from partnership firms for deduction.
- Validity of rectification order under section 154 of the Income-tax Act.

Interpretation of Deduction under Section 32AB:
The case involved an appeal against the order of the CIT(Appeals) regarding the computation of deduction under section 32AB of the Income-tax Act for the assessment year 1990-91. The dispute arose when the Assessing Officer rectified the assessment order, disallowing the deduction on the share income from three partnership firms received by the private limited company, which was also engaged in running a Steel Mill. The CIT(Appeals) held that the company was entitled to the deduction under section 32AB on the entire profits of the business, including the share income from the partnership firms. The revenue challenged this decision before the Tribunal, arguing that the proviso to section 32AB(1) clarified that deduction was not admissible on share income from partnership firms.

Eligibility of Share Income for Deduction:
The Revenue contended that the proviso to section 32AB(1) specified that the deduction under this section was not allowable in respect of share income from partnership firms. However, the Tribunal interpreted the proviso differently, stating that it applies when the assessee is a firm or an association of persons, not in the case of a company like the assessee. The Tribunal emphasized that the share income from the partnership firms was considered as business income in the hands of the assessee, and as per section 32AB(1)(ii), the deduction is allowable on the profits of eligible business, which includes the profits from partnership firms. Referring to a Supreme Court decision, the Tribunal held that the income from partnership firms formed part of the business income of the assessee, and since the partnership firms were not carrying on any non-eligible businesses, the share income could not be excluded from the deduction under section 32AB.

Validity of Rectification Order:
The Tribunal also addressed the validity of the rectification order passed under section 154 of the Income-tax Act. It noted that the issue of whether the deduction under section 32AB could be allowed on the share income from partnership firms was debatable and not free from doubt. Citing a Supreme Court decision, the Tribunal emphasized that a mistake apparent from the record must be obvious and patent, which was not the case here. Therefore, the Tribunal upheld the order of the CIT(Appeals, dismissing the appeal by the revenue.

In conclusion, the Tribunal upheld the decision of the CIT(Appeals), ruling in favor of the assessee regarding the computation of deduction under section 32AB, including the share income from partnership firms, and rejecting the rectification order passed by the Assessing Officer.