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2012 (7) TMI 775 - HC - Income TaxDeduction u/s 32AB while computing the eligible profits and gains for the purpose of working out the deduction u/s 80HH and 80I - assessee s contention that relief under Section 32AB has nothing to do with the profits and gains derived from the industrial undertaking - Held that - Section 80HH shows that from the gross total income, deduction at a particular percentage is granted under the said Section to the eligible assessee from the profits and gains derived from that industrial undertaking - the phrase derived from , being narrower and in contradistinction to the term attributable to income which do not have a direct nexus to the industrial undertaking, cannot be regarded as having been derived from the industrial undertaking. the scheme of deduction under Chapter VIA and the decisions of the Apex Court in M/s Liberty India Versus Commissioner of Income Tax 2009 (8) TMI 63 - SUPREME COURT no hesitation in holding that the relief under Section 32AB, relatable to plant and machinery installed in other units, could not be deducted from the profits of the new industrial undertaking for the purpose of computing the relief under Section 80HH and 80I. Computation of Section 80AB - Held that - Not all the profits and gains of the assessee s business forming part of Section 32AB, would be included under Section 80HH. For the purpose of deduction under Section 80HH and 80I, necessarily one has to undertake the exercise of identifying from the book profits, the income derived from the industrial undertaking qualifying for relief under Section 80HH, included in the working of Section 32AB so as to consider it for computation as per Section 80AB - remit the matter back to the Assessing Officer working out the relief under Section 32AB.
Issues Involved:
1. Deduction under Section 32AB from profits for determining relief under Section 80HH and 80I. 2. Relief under Section 32AB for Plant and Machinery in other units and its impact on profits of new industrial undertakings for computing relief under Section 80HH and 80I. 3. Disallowance of depreciation on guest house building as per Section 37(4) of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Deduction under Section 32AB from profits for determining relief under Section 80HH and 80I The Tribunal held that deduction under Section 32AB must be allowed from the profits when determining the relief under Sections 80HH and 80I. The assessee argued that the relief under Section 32AB, which pertains to investment deposit allowance, should not be deducted from the profits of the new industrial undertakings for computing relief under Sections 80HH and 80I. The Tribunal, referencing the Supreme Court decision in *Distributors (Baroda) P. Ltd. Vs. Union of India* and the High Court decision in *CIT Vs. Sundaravel Match Industries (P) Ltd.*, maintained that special deductions should be computed from the total income calculated under the Act's provisions. The Court, however, accepted the assessee's argument that the deduction under Section 80HH should be confined to profits and gains derived from the industrial undertaking, emphasizing the narrower scope of the term "derived from" compared to "attributable to." The Court referred to the Supreme Court's decision in *Liberty India Vs. CIT*, which stressed that profits derived from the industrial undertaking must have a direct nexus to the industrial activity. The Court concluded that the relief under Section 32AB should not be included in the profits and gains of the undertaking for the purpose of determining the deduction relief under Sections 80HH and 80I. Issue 2: Relief under Section 32AB for Plant and Machinery in other units and its impact on profits of new industrial undertakings for computing relief under Section 80HH and 80I The Court reiterated that the relief under Section 32AB, which pertains to investment deposit allowance for plant and machinery installed in other units, should not be deducted from the profits of the new industrial undertaking when computing relief under Sections 80HH and 80I. The Court emphasized that the profits and gains derived from the industrial undertaking must have a direct nexus to the industrial activity of that undertaking. The Court held that the relief under Section 32AB should not influence the profits and gains derived from the new industrial undertaking for the purposes of Sections 80HH and 80I. Issue 3: Disallowance of depreciation on guest house building as per Section 37(4) of the Income Tax Act, 1961 The appellant's counsel conceded that the issue of disallowance of depreciation on the guest house building is covered against the assessee by the Supreme Court's decision in *Britannia Industries Ltd. Vs. Commissioner of Income-tax*. Consequently, the Tax Case Appeal was rejected concerning this issue. Supplemental Order: After delivering the judgment, the Court revisited the case upon the Revenue's submission of an unreported decision where a similar issue was considered. The Court, after hearing both parties again, reaffirmed that the relief under Section 32AB should not be included in the profits and gains of the industrial undertaking for the purpose of determining the deduction relief under Sections 80HH and 80I. The Court directed the Assessing Officer to identify the profits and gains derived by the assessee considered for working out the relief under Section 32AB for the purpose of computing the relief under Sections 80HH and 80I, guided by the Supreme Court's decision in *Liberty India Vs. CIT* and the High Court's decision in *Commissioner of Income Tax v. NSC Shoes*. Conclusion: The Tax Case Appeal was partly allowed, with the Court holding that the deduction under Section 32AB should not be considered in computing the profits and gains of the industrial undertaking for determining the deduction relief under Sections 80HH and 80I. The matter was remitted to the Assessing Officer for further examination in line with the Court's directives. The issue of depreciation on the guest house building was decided against the assessee based on the precedent set by the Supreme Court.
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