2024 (9) TMI 146 - HC - Income Tax

Deduction u/s 35AB - business of the concerned unit had not commenced during the year under consideration - HELD THAT - Tribunal has followed its decision in assessee s own case for the AY 1999-2000 2017 (5) TMI 1514 - ITAT AHEMDABAD wherein the decision of ITAT Hyderabad in the case of VBC Industries ltd 1993 (8) TMI 126 - ITAT HYDERABAD-A followed setting up of the manufacturing facility of soda ash was by way of an extension of the existing business of the assessee of manufacturing soap. That being the situation, deduction u/s 35AB cannot be denied. In plain terms, sub section (1) of section 35AB grants exemption to the extent of 1/6th of the expenditure incurred by the assessee by way of lumpsum payment towards consideration for acquiring technical knowhow for the use for the purpose of the business. These conditions are satisfied. The question is, therefore, answered in the negative against the Revenue. Exclude only the net income from FDR interest while computing deduction u/s 80HH and section 80I - HELD THAT - Issue squarely covered by the decision 2016 (6) TMI 1485 - GUJARAT HIGH COURT in the case of the assessee held that in computing the special deductions under sections 80-I, 80-IA and 80HH net incomes not derived from industrial undertaking should be excluded and that the Tribunal was right in granting benefit of deduction under section 80-I of the Act on various incomes such as job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste. Therefore we are of the opinion that the Tribunal is justified in directing to exclude the net income from FDR interest, interest on loans, discounting income and transport income. we answer the question No. (b) in affirmative in favour of the assessee and against the Revenue adopting the same reasoning given by this Court in the case of the assessee for the Assessment Year 1996-97 to the effect that in computing the special deductions under Sections 80-I, 80-IA and 80HH, net incomes not derived from industrial undertaking should be excluded and the Tribunal was right in holding the net income from FDR interest, etc. Interest on income from insurance claim, truck hiring charges and truck rent is derived from industrial undertaking - Issue answered in favour of the assessee and against the Revenue as the Tribunal was right in granting deduction under Section 80-I by holding that interest on income from insurance claim, truck hiring charges and truck rent is derived from industrial undertaking. Deduction u/s 80-I - Treating the miscellaneous income being commission, discount charges, sale of wastages and diesel sales as income derived from industrial undertaking - This issue is also decided by this Court in assessee s own case by following the decision of this Court in the case of Dy. CI.T. vs. Harjivandas Juthabhai Zaveri 1999 (12) TMI 5 - GUJARAT HIGH COURT in which the Court upheld the decision of the Tribunal granting benefit of deduction under Section 80-I of the Act on various incomes such as job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste. In view of such findings, question is answered in favour of the assessee and against the Revenue holding that the Tribunal was justified in law in treating the miscellaneous income being commission, discount charges, sale of wastages and diesel sales as income derived from industrial undertaking. Entitlement to deduction of technical know-how fees u/s 35AB confirmed. Re-compute the deduction u/s 80-HHC after excluding the amount of sales tax and excise duty from the quantum of turnover - See Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT .

Issues Involved:
1. Deduction under Section 35AB of the Income Tax Act, 1961.
2. Exclusion of net income from FDR interest while computing deductions under Sections 80HH and 80I.
3. Deduction of interest on income from insurance claims, truck hiring charges, and truck rent under Section 80-I.
4. Treatment of miscellaneous income as income derived from industrial undertaking under Section 80-I.
5. Deduction of technical know-how fees under Section 35AB.
6. Deduction of other expenses related to Soda Ash Project and LAB Project.
7. Claim on account of inter-division transfer.
8. Exclusion of sales tax and excise duty from total turnover for deduction under Section 80HHC.

Issue-wise Detailed Analysis:

1. Deduction under Section 35AB of the Income Tax Act, 1961:
The Tribunal allowed the deduction under Section 35AB, following its decision in the assessee's own case for AY 1999-2000. The Court confirmed this, noting that the assessee was already engaged in manufacturing soap and had acquired technical know-how for setting up a soda ash manufacturing plant. The Court held that the deduction could not be denied as the new business was an extension of the existing one. The question was answered in favor of the assessee.

2. Exclusion of net income from FDR interest while computing deductions under Sections 80HH and 80I:
The Court referred to its earlier decision in the case of the assessee, where it was held that net incomes not derived from industrial undertakings should be excluded when computing special deductions under Sections 80-I, 80-IA, and 80HH. The Tribunal's direction to exclude only the net income from FDR interest was upheld, and the question was answered in favor of the assessee.

3. Deduction of interest on income from insurance claims, truck hiring charges, and truck rent under Section 80-I:
The Court referred to its previous judgment, which held that the net income, not the gross income, should be excluded for deduction purposes. The Tribunal's decision to grant deduction under Section 80-I for interest on income from insurance claims, truck hiring charges, and truck rent was upheld. The question was answered in favor of the assessee.

4. Treatment of miscellaneous income as income derived from industrial undertaking under Section 80-I:
The Court upheld the Tribunal's decision to treat miscellaneous income such as commission, discount charges, sale of wastages, and diesel sales as income derived from industrial undertakings. This was based on a similar decision in the case of Dy. CIT vs. Harjivandas Juthabhai Zaveri. The question was answered in favor of the assessee.

5. Deduction of technical know-how fees under Section 35AB:
This issue was already addressed in the context of question No. (a). The Court confirmed that the technical know-how fees were deductible under Section 35AB, as the new business was an extension of the existing one. The question was answered in favor of the assessee.

6. Deduction of other expenses related to Soda Ash Project and LAB Project:
The Court referred to its decision in Tax Appeal No. 358 of 2014, where it was held that the expansion of the existing business allowed for the deduction of expenses related to the Soda Ash Project and LAB Project. The Tribunal's decision was upheld, and the question was answered in favor of the assessee.

7. Claim on account of inter-division transfer:
The Tribunal restored the issue back to the Assessing Officer without giving a finding. The Court declined to answer this question, as it was remanded for further consideration.

8. Exclusion of sales tax and excise duty from total turnover for deduction under Section 80HHC:
The Court referred to its decision in Tax Appeal No. 1214 of 2005, following the Supreme Court's ruling in Commissioner of Income Tax vs. Lakshmi Machine Works. The Tribunal's direction to exclude sales tax and excise duty from the total turnover for computing deduction under Section 80HHC was upheld. The question was answered in favor of the assessee.

Conclusion:
The Tax Appeals were dismissed, and the questions were answered in favor of the assessee. Consequently, the related Special Civil Applications became infructuous and were disposed of.

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