1998 (1) TMI 117 - AT - Income Tax

Summary

Issues Involved:

1. Inclusion of dividend income in profits for deduction under section 32AB.
2. Inclusion of profit on sale of capital assets in profits for deduction under section 32AB.
3. Inclusion of write back of liability in profits for deduction under section 32AB.
4. Validity of rectification order under section 154 of the IT Act.

Detailed Analysis:

1. Inclusion of Dividend Income:

The assessee argued that dividend income should be included in the net profits of the company as per Schedule VI of the Companies Act and that section 32AB(3)(a) does not specify exclusion of dividend income while computing profits of eligible business or profession. The Assessing Officer and the CIT(Appeals) disagreed, stating that dividend income is not part of the profits of eligible business. However, the Tribunal held that for the purpose of deduction under section 32AB, profits must be computed according to Parts II & III of Schedule VI to the Companies Act, not the IT Act. Thus, dividend income is includible in the profits of the business.

2. Inclusion of Profit on Sale of Capital Assets:

The assessee contended that profit on the sale of capital assets should be included in the profits as per Schedule VI of the Companies Act. The Assessing Officer and the CIT(Appeals) excluded this amount, treating it as capital gains not part of business profits. The Tribunal, however, concluded that capital gains are part of the profits of the business as per the Companies Act and should be included in the computation for section 32AB deduction.

3. Inclusion of Write Back of Liability:

The assessee included Rs. 95.25 lakhs written back from a liability previously provided for excise duty. The Assessing Officer and the CIT(Appeals) treated this as a provision, not an ascertained liability, and excluded it from profits. The Tribunal disagreed, noting that the liability was ascertained based on the demand raised by the Central Excise Authority and was written back following a favorable High Court order. This amount falls under section 41(1)(a) of the IT Act and is includible in the profits for deduction under section 32AB.

4. Validity of Rectification Order under Section 154:

The assessee argued that the rectification under section 154 was not valid as the issues were debatable and not mistakes apparent from the record. The Tribunal agreed, noting that the original assessment included these items after due consideration and that the subsequent order under section 154 was a change of opinion, not a correction of an apparent mistake. The Tribunal cited the Supreme Court's decision in the case of Volkart Bros., concluding that the rectification under section 154 was unauthorized.

Conclusion:

The Tribunal allowed the appeal, holding that the inclusion of dividend income, profit on the sale of capital assets, and write back of liability in the profits for deduction under section 32AB was correct. It also ruled that the rectification order under section 154 was invalid, restoring the original assessment's allowance of the deduction.