2013 (9) TMI 44 - AT - Income Tax

Deduction u/s 80IC - Interest on the amounts due from dealers - Whether the income received by the assessee by way of interest on the amounts due from dealers was the income of first degree of the undertaking, making it eligible for the benefit of deduct ion u/s 80IC of the Act - Held that - Section 80IC of the Act provides that where the gross total income of an assessee, includes, any profit and gain derived by an undertaking/enterprise from any business, then in accordance with the provisions of sub-sect ions, would be entitled to deduction from such profits and gains as computed under sub-sect ion (3) of the Act and the same shall be deducted while computing the total income of the assessee. The basis for grant of deduct ion u/s 80IC of the Act are the profits and gains derived by an undertaking from the business carried on by it - The provisions of Sect ion 80IC of the Act are par imateria to Section 80IA/80IB of the Act. The words in section 80IC are also profits derived from business of under taking . Interest received on the overdue payment from its dealers constituted the price of the goods sold by the assessee and such interest income is derived from the manufacturing activities carried on by the assessee and are business income eligible for deduct ion u/s 80IC of the Act - Following decision of Commissioner of Income-tax versus Vidyut Corporation 2010 (4) TMI 229 - BOMBAY HIGH COURT - Decided in favour of assessee. Other income shown by the assessee i.e. interest income received from bank and dividend income are not derived from the profits and gains of the business and not eligible for deduct ion u/s 80IC of the Act. Profit on sale of fixed asset reflected at Rs. 1.20 Lakhs is book entry under the head other income and the same is to be excluded as the said profit is to be considered in the computation of income while al lowing depreciation on assets. - Decided against the assessee. The income from processing fee of Rs. 4.45 lakhs and exchange gain of Rs. 0.11 lakhs are also not derived from the profits and business and consequently not eligible for deduct ion u/s 80IC of the Act. - Decided against the assessee. Depreciation - date of put to use - date of commencement of business - Held that - The assessee has furnished on record the evidence by way of sanctions/approvals taken from the Pollution Control Board and Electricity Department, which are placed at pages 60 to 62 of the paper book under which the product ion of new unit has been shown from 14.10.2006. The assessee has also submit ted a copy of electricity Bill under which it claims that the power sanction for Furnace was put to use on 14.10.2006 - claim of depreciation allowed - Decided in favour of assessee.

Issues Involved:
1. Disallowance of deduction under Section 80IC on other income (interest, dividend, rent, processing fee, exchange gain, and miscellaneous income).
2. Deletion of disallowance of depreciation on plant and machinery.
3. Deletion of disallowance of interest on advance made for purchase of immovable property.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IC on Other Income:
The primary issue raised by the assessee was the disallowance of the deduction under Section 80IC on other income amounting to Rs. 180.13 lakhs. This income comprised interest, dividend, rent, processing fee, exchange gain, and miscellaneous income. The Assessing Officer (AO) disallowed the deduction, arguing that the income was not derived from the industrial undertaking and cited the Supreme Court's decision in Liberty India v. CIT, 317 ITR 218.

The CIT(A) upheld the AO's decision, stating that the income was attributable to but not derived from the industrial undertaking, thus confirming the disallowance. The assessee contended that the income was intrinsically related to its business activities and should be eligible for deduction under Section 80IC.

The Tribunal analyzed the case law, including Liberty India and other relevant judgments, and concluded that interest received from dealers on overdue payments was part of the sale price and derived from the business, making it eligible for deduction under Section 80IC. However, other income such as interest from banks, dividend income, profit on the sale of fixed assets, processing fee, exchange gain, and miscellaneous income were not derived from the business and thus not eligible for deduction.

2. Deletion of Disallowance of Depreciation on Plant and Machinery:
The Revenue appealed against the CIT(A)'s decision to delete the disallowance of depreciation on plant and machinery. The AO had denied depreciation, arguing that the machinery was not put to use during the financial year 2006-07.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence, including electricity bills and approvals from the Pollution Control Board, to prove that the machinery was put to use on 14.10.2006. Consequently, the assessee was entitled to claim depreciation on the plant and machinery.

3. Deletion of Disallowance of Interest on Advance for Purchase of Immovable Property:
The Revenue also appealed against the deletion of disallowance of interest on an advance made for the purchase of immovable property. The AO had disallowed the interest, arguing that the advance was not related to the business and cited the Punjab & Haryana High Court's decision in Abhishek Industries v. CIT, 286 ITR 1.

The CIT(A) found that the advance was made for the purchase of the company's registered office, deeming it a commercial necessity. The Tribunal agreed with the CIT(A), referencing the Supreme Court's decision in S.A. Builders v. CIT, 288 ITR 1, which supports the principle of commercial expediency. Thus, the disallowance of interest was deleted.

Conclusion:
- The appeal by the assessee was partly allowed, granting deduction under Section 80IC for interest received from dealers but denying it for other types of income.
- The appeal by the Revenue was dismissed, upholding the CIT(A)'s decisions on depreciation and interest disallowance.

Order Pronounced:
The judgment was pronounced in the open court on June 6, 2012.

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