2000 (2) TMI 230 - AT - Income Tax

Summary

Issues:
1. Computation of business profits for the purpose of section 80HHC(3) involving interpretation of sub-section (3) of section 32A of the Income-tax Act.
2. Disallowance under Rule 6B.
3. Computation of relief under section 80-I.

Analysis:

Issue 1: Computation of business profits for section 80HHC(3):
The controversy in this case revolved around the deduction under section 80HHC and the treatment of unabsorbed investment allowance for computing business profits. The Assessing Officer computed the relief by setting off the unabsorbed investment allowance against business profits, while the assessee contended that the allowance should be set off against total income. The CIT(A) upheld the AO's decision, but the Tribunal disagreed. The Tribunal held that the unabsorbed investment allowance should be set off against total income and not just against business profits. The legislative intent, as per sub-section 32(2), indicated a different treatment for unabsorbed depreciation, showing a deliberate departure by the Legislature in the case of unabsorbed investment allowance.

Issue 2: Disallowance under Rule 6B:
The Tribunal referred to a decision of the Bombay High Court, stating that no disallowance could be made if the articles gifted did not carry the logo. Since the Assessing Officer admitted that there was no logo on the articles, the disallowance was deleted following the High Court's decision.

Issue 3: Computation of relief under section 80-I:
Regarding the exclusion of interest income from the relief under section 80-I, the Tribunal considered various sources of interest income and their nexus to the industrial undertaking. It allowed inclusion of interest on certain deposits but excluded others based on the lack of nexus between the income and the activities of the assessee. The Tribunal partly allowed this ground by directing the Assessing Officer to include specific sums in the business income of the industrial undertaking.

In conclusion, the Tribunal partly allowed the appeal, setting aside the CIT(A)'s order on the treatment of unabsorbed investment allowance and directing a recomputation based on their decision. It also deleted the disallowance under Rule 6B and made adjustments to the computation of relief under section 80-I based on the nexus between interest income and the industrial undertaking's activities.