1991 (8) TMI 144 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under section 80HH for Yamuna Nagar and Jammu branches.
2. Apportionment of interest debited in the head office profit and loss account to the branches.
3. Nature of payment to D.F.O.
4. Jurisdiction under section 263 of the IT Act.
5. Depreciation claimed in the books of the head office.

Issue-wise Detailed Analysis:

1. Deduction under section 80HH for Yamuna Nagar and Jammu branches:
The CIT disallowed a portion of the deduction under section 80HH, attributing one-third of the profits from each branch to trading activities, which are not eligible for the deduction. The Tribunal, however, found considerable merit in the assessee's argument that the manufacturing and sale of sleepers is an integrated activity. The Tribunal held that once an undertaking is identified as an industrial undertaking, the entire profits derived from such an undertaking qualify for the deduction under section 80HH. The Tribunal emphasized that the activity of manufacturing sleepers and selling them is inseparable and should not be bifurcated. The Tribunal also noted that the entire State of Jammu & Kashmir is a notified backward area, and thus, the entire profits from the Jammu branch qualify for the deduction. Consequently, the Tribunal concluded that the CIT was in error in reducing the profits for the purpose of section 80HH.

2. Apportionment of interest debited in the head office profit and loss account to the branches:
The CIT apportioned interest debited in the head office profit and loss account to the branches, reducing the profits of Yamuna Nagar and Jammu branches by Rs. 4,37,372 and Rs. 8,13,122, respectively. The Tribunal confirmed the deduction of Rs. 4,37,372 from the profits of the Yamuna Nagar branch, as the assessee did not seriously dispute this amount. However, for the Jammu branch, the Tribunal found that there was no justification for the deduction, as the branch had made excess payments to the head office over a period of time. The Tribunal concluded that the apportionment of interest to the Jammu branch was uncalled for.

3. Nature of payment to D.F.O.:
The CIT restored the matter to the Assessing Officer to ascertain the correct nature of the payment to D.F.O., whether it represented interest or had an element of penalty or infraction of law. The Tribunal noted that the Deputy Commissioner of Income-tax had reconsidered the matter and concluded that no disallowance was called for. Consequently, the assessee withdrew this ground, and the Tribunal treated it as withdrawn.

4. Jurisdiction under section 263 of the IT Act:
The assessee argued that the CIT had no jurisdiction under section 263, as the Assessing Officer's order had merged with the order of the CIT (Appeals). However, the Tribunal noted that this ground was not pressed before them and treated it as dismissed.

5. Depreciation claimed in the books of the head office:
The CIT held that depreciation on certain items pertaining to the Yamuna Nagar branch had been wrongly claimed in the books of the head office. The Tribunal noted that the assessee did not dispute this finding and treated the ground relating to the depreciation of Rs. 10,743 as dismissed.

Conclusion:
The Tribunal allowed the assessee's appeal partly. The assessee was entitled to the deduction under section 80HH on the entire amount of profits of the Jammu branch shown at Rs. 29,97,398. For the Yamuna Nagar branch, the assessee was entitled to the deduction on Rs. 15,04,964, after deducting interest and depreciation as worked out by the CIT.