2016 (3) TMI 270 - AT - Income Tax

Eligibility of deduction u/s 80IC on freezing charges - Held that - AO is required to verify whether that the nature of such income is derived from the eligible undertaking or not. If the answer found to that question is yes then the deduction should have been allowed to the assessee on this income. In our view this income forms part of the composite activity of processing of vegetables and certainly eligible for deduction u/s 80IC of the Act. The ld. AR also aptly relied on the Britannica Encyclopedia, Wikipedia where freezing is considered as one of the process of the processing of vegetables etc. It is not the case of the AO that freezing charges does not form part of the processing of vegetables and it is altogether different source of income or different business activity of the assessee. Only reason advanced by AO is that receipt in income is storage charges. Therefore, we do not have any hesitation in in holding that freezing charges earned by the assessee are part of the composite activity of processing of peas. The decision relied upon by the ld. DR of Hon‟ble Supreme Court in case of Liberty India Vs. CIT 2009 (8) TMI 63 - SUPREME COURT does not apply to the facts of this case as in that case held that the DEPB/ duty Drawback which has received from the Govt. of India to support the assessee are not income derived from the industrial undertaking. Here in this case freezing activity, which is carried out by the assessee is part of the composite activity of processing of vegetables. It is not the case of the revenue that freezing activity are not at all required to carry out-processing of vegetable performed by the assessee of Mother Dairy Food Pvt. Ltd. Therefore, we confirm the order of the learned Commissioner of Income tax (Appeals) and held that freezing charges earned by the assessee is an integral part of the processing of vegetables and therefore is eligible for deduction u/s 80IC of the Act. - Decided in favour of assessee

Summary

Issues:
- Whether the deduction u/s 80-IC in respect of rent income is allowable?
- Interpretation of provisions of section 80-IC read with Schedule XIV of the IT Act, 1961.
- Inclusion of the word 'preservation' in Schedule XIV for deduction u/s 80-IC on rental income.
- Justification of claim u/s 80-IC by incorporating provisions of 80-IB (11A).
- Allowance of deduction u/s 80-IC on rent income ignoring previous court decisions.
- Whether the order of the CIT (A) should be set aside and that of the AO be restored.

Analysis:

Issue 1: Deduction u/s 80-IC on rent income
The assessee, engaged in processing vegetables, claimed deduction u/s 80IC for rent income. The AO denied the deduction, stating it was not business income from the eligible industrial undertaking. However, the CIT (A) allowed the deduction, considering the rent income derived from the industrial undertaking. The Tribunal upheld this decision, stating that freezing charges earned by the assessee were part of the processing activity and eligible for deduction u/s 80IC.

Issue 2: Interpretation of provisions
The revenue argued against liberal interpretation of the law, claiming the assessee was not eligible for deduction on rental income. The assessee contended that freezing charges were integral to processing activities. The Tribunal agreed with the assessee, emphasizing that the freezing charges were part of the composite activity of processing vegetables and thus eligible for deduction u/s 80IC.

Issue 3: Previous court decisions
The revenue cited a previous court decision regarding DEPB/duty drawback, arguing against the deduction. However, the Tribunal distinguished this case, stating that freezing charges were directly related to the industrial undertaking and eligible for deduction. The Tribunal confirmed the CIT (A)'s order, dismissing the revenue's appeal.

Conclusion:
The Tribunal upheld the CIT (A)'s decision, allowing the deduction u/s 80IC on rent income, considering freezing charges as part of the processing activity. The Tribunal emphasized the direct nexus of freezing charges to the industrial undertaking, making it eligible for the deduction. The appeal of the revenue was dismissed, and the order was pronounced in favor of the assessee on 28.01.2016.