1995 (3) TMI 146 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under Section 32AB for assessment years 1989-90 and 1990-91.
2. Computation of capital loss for the assessment year 1989-90.
3. Addition of accrued interest for the assessment year 1989-90.

Detailed Analysis:

1. Eligibility for Deduction under Section 32AB:
- Assessment Year 1989-90:
The assessee, a public limited company engaged in the production of transformers, claimed a deduction of Rs. 10,29,000 under Section 32AB. The Assessing Officer excluded certain receipts (interest from debentures, unit trust, fixed deposits, excess income-tax, income from investments, sale of coconut, sale of old trees, commission on unit trust, and share transfer fee) from the computation, allowing a deduction of only Rs. 8,77,946. The CIT(A) upheld this computation, stating that only income derived directly from business activities could be considered eligible business profits.

- Assessment Year 1990-91:
The assessee claimed a deduction of Rs. 23,25,000 under Section 32AB. The Assessing Officer excluded various amounts, including interest income from investments and other sources, share transfer fees, and miscellaneous income (sale of coconut, old materials, windows, old tyres, and commission on railway lands), computing a deduction of Rs. 20,14,176. The CIT(A) for this year took a different view, agreeing with the assessee's contention that all receipts included in the profits computed under the Companies Act should be considered for deduction under Section 32AB. The Tribunal agreed with this view, stating that profits of eligible business should include all income as per the accounts prepared under the Companies Act, irrespective of the head of income under the IT Act.

2. Computation of Capital Loss:
- Assessment Year 1989-90:
The assessee purchased debentures with accrued interest and sold some during the year. The Assessing Officer disallowed the deduction of interest included in the purchase price and computed the capital loss by considering the entire interest on the debentures. The CIT(A) upheld this computation. The Tribunal upheld the CIT(A)'s order, referencing the Supreme Court's decision in Vijaya Bank Ltd. vs. Addl. CIT, which stated that the entire price paid for securities, including interest, is a capital outlay and cannot be set off as an expenditure against interest income received.

3. Addition of Accrued Interest:
- Assessment Year 1989-90:
The Assessing Officer added Rs. 50,700 to the income from other sources, representing interest accrued on purchased debentures. The CIT(A) confirmed this addition, stating that the interest accrued was already considered for working out the cost. The Tribunal upheld the CIT(A)'s decision, aligning with the principle that the entire purchase price, including accrued interest, is a capital outlay.

Conclusion:
The Tribunal allowed the assessee's appeal for the assessment year 1990-91, agreeing that all receipts included in the profits computed under the Companies Act should be considered for deduction under Section 32AB. However, it dismissed the assessee's appeal for the assessment year 1989-90, upholding the CIT(A)'s computation of capital loss and addition of accrued interest. The Tribunal's decision emphasized the comprehensive inclusion of income as per the Companies Act for Section 32AB deductions and reinforced the treatment of accrued interest as capital outlay in the computation of capital loss.