2024 (7) TMI 730 - HC - Income Tax

Disallowance of expenses incurred in respect of municipal taxes, maintenance and repair of rest/guest house - Allowance of expenses incurred in buying presentation articles - HELD THAT - As relying on Income Tax Appeal relating to Assessment Year 1995-96, Question No. 1 would stand answered against the Assessee and in favour of the Revenue by disallowing the deduction in respect of municipal taxes, maintenance taxes and repair of guest house. Question No. 2 would stand answered in favour of the Assessee and against the Revenue, allowing deduction towards expenses of buying presentation articles. Deduction u/s 80HHC - proceeds of sale of scrap would be factored into the size of total turnover for purposes of computing the deduction - HELD THAT - This issue has been squarely covered by the Supreme Court in Punjab Stainless Steel Industries 2014 (5) TMI 238 - SUPREME COURT holding that for purposes of the term total turnover with regard to Section 80HHC, the ratio should be between the export turnover of the business in question and the total turnover of the business in question, and that the proceeds of sale of scrap would not form part of total turnover for purposes of Section 80HHC. In the facts of the case at hand, such turnover would relate to a turnover of the paper manufactured by the Assessee, to which, the turnover of sale of scrap must not be added. Question No.3 in favour of the Assessee and against the Revenue. Lease rent received are part of the total turnover or not - Whether 90% of interest included in the lease rent received by the Appellant has been rightly reduced from business income of the Appellant? - HELD THAT - As both these questions stand answered against the Assessee and in favour of the Revenue, in the light of the judgment of K. Ravindranathan Nair 2007 (11) TMI 10 - SUPREME COURT The lease rent received by the Assessee would therefore not be part of the business income or turnover of the Assessee. Likewise, the disallowance of 90% of interest component of the lease rental income also cannot be questioned. Since these questions stand squarely answered by the law declared in the aforesaid judgment of the Supreme Court on the premise of the need to have a direct linkage to export turnover , nothing survives on these two issues under this Appeal.

Summary

Issues:
1. Allowability of deduction for expenses incurred in respect of municipal taxes, maintenance, and repair of rest/guest house.
2. Allowability of deduction for expenses incurred in buying presentation articles.
3. Inclusion of sale proceeds of scrap in total income.
4. Treatment of lease rent received as part of total turnover.
5. Reduction of interest component from business income.

Analysis:

Issue 1:
The first issue pertains to the deduction of expenses amounting to Rs. 2,33,726 incurred for municipal taxes, maintenance, and repair of a rest/guest house. The court ruled against the Appellant, disallowing the deduction for these expenses, favoring the Revenue.

Issue 2:
Regarding the deduction for expenses of Rs. 18,40,239 incurred in buying presentation articles, the court ruled in favor of the Assessee, allowing the deduction for these expenses.

Issue 3:
The question of whether the sum of Rs. 44,40,022 being the sale proceeds of scrap should be part of the total turnover was addressed. The court relied on the Supreme Court's decision in Commissioner of Income Tax Vs. Punjab Stainless Steel Industries, holding that sale proceeds of scrap should not be included in the total turnover for the purpose of computing deductions under Section 80HHC of the Income Tax Act, 1961. Consequently, the Appeal was allowed in favor of the Assessee on this issue.

Issue 4:
The treatment of the sum of Rs. 4,20,02,732 being the lease rent received by the Appellant as part of the total turnover was examined. The court, guided by the Supreme Court's decision in Commissioner of Income-Tax Vs. K. Ravindranathan Nair, concluded that the lease rent received should not be considered part of the business income or turnover. Therefore, this issue was resolved against the Assessee and in favor of the Revenue.

Issue 5:
The final issue revolved around the reduction of 90% of interest amounting to Rs. 1,29,87,402 from the lease rent of Rs. 4,20,02,732 received by the Appellant. The court, following the precedent set by the Supreme Court, upheld the reduction of the interest component from the business income of the Appellant. Consequently, this issue was decided against the Assessee and in favor of the Revenue.

In conclusion, the court disposed of the Appeal, with the first, fourth, and fifth issues being resolved against the Assessee, and the second and third issues being decided in favor of the Assessee. The judgment was based on the application of relevant legal principles and precedents established by the Supreme Court in similar cases.