1995 (10) TMI 75 - AT - Income Tax

Summary

Issues Involved:
1. Whether the deduction u/s 32AB was permissible only out of "eligible business" income of the specific unit where the machinery was installed.
2. Whether the CIT's interpretation of "eligible business" was correct.
3. Whether the deduction u/s 32AB should be allowed out of the total income of the assessee or the income of a specific unit.

Summary:

Issue 1: Deduction u/s 32AB and "Eligible Business" Income
The assessee appealed against the CIT's order which held the assessment order dated July 6, 1989, as erroneous and prejudicial to the interest of the Revenue u/s 263 of the Income-tax Act. The CIT concluded that the deduction of Rs. 20,98,332 u/s 32AB for investment in machinery was wrongly allowed because the factory at A-99, Noida, where the machinery was installed, had no profit. The CIT treated this factory as a separate industrial undertaking and "eligible business" in terms of sub-sections (1) and (2) of section 32AB.

Issue 2: Interpretation of "Eligible Business"
The assessee argued that the CIT's view was based on a misreading of the statutory provision. The deduction for investment on machinery was allowable out of the profits and gains of the business of the "assessee" and not out of any specific branch or undertaking. The Tribunal noted that the definition of "eligible business" is an exclutory definition and does not restrict the deduction to the unit where the machinery is installed. The Tribunal found no justification to restrict the meaning of "eligible business" to the unit where machinery is installed, as long as the business does not fall within the exclutory clauses of section 32AB.

Issue 3: Deduction Out of Total Income of the Assessee
The Tribunal compared section 32AB with other provisions like sections 10A and 80E, which specifically state that deductions are to be computed with reference to profits derived by an industrial undertaking. However, section 32AB allows deductions out of the total income of the assessee. The Tribunal highlighted several points indicating that the deduction is to be allowed out of the total income of the assessee, such as the requirement to add dividends paid or proposed, income-tax paid or payable, and the reference to total profits of the business or profession of the assessee.

Conclusion:
The Tribunal held that the deduction u/s 32AB is to be allowed out of the total income of the assessee and not out of the profits of a specific unit or undertaking. Consequently, the Tribunal canceled the order passed by the CIT and restored the original assessment order by the Assessing Officer. The assessee's appeal was allowed.