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TMI Blog2003 (1) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... orm part of the eligible business, as per Parts II and III of Sch. VI of the Companies Act and, therefore, he confirmed the action of the AO in this regard. In respect of interest received Rs. 75422, learned CIT(A) held that it formed part of business income, as per Parts II and III of Sch. VI, and, therefore, allowed deduction under s. 32AB. In respect of rental income of Rs. 1,07,624, except income of Rs. 6,000, he was of the view that it is part of business income because the rent was recovered from the employees of the company and allowed deduction under s. 32AB. In respect of profit on sale of unit amounting to Rs. 3,42,000, learned CIT(A) held that it was not part of business activities of the assessee and profit on sale of these units would definitely not be includible in the business income of the assessee. Accordingly, it was held that this income would not be entitled to deduction under s. 32AB. For other income of Rs. 3,742, learned CIT(A) was of the view that it is incidental to the business activities of the assessee and, therefore, allowed deduction under s. 32AB. The Revenue has challenged the allowability of deduction under s. 32AB in respect of interest, rent and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that they do not form part of business profits. Interest has been received on FDRs. He invited our attention to p. 1 of the paper book. In respect of capital gains amounting to Rs. 3,42,000 on sale of units, our attention was invited to p. 3 of the paper book consisting of computation statement of income and thus, it was submitted that the assessee itself has shown income under the head 'capital gains' and it cannot become a part of business profit. In respect of rental income and amount written back, it was submitted that learned CIT(A) has rightly disallowed deduction under s. 32AB, as they do not form part of income of eligible business. Reliance was placed on order dt. 14th Feb., 2002, in ITA Nos. 1816 and 1933 of 1992 for asst. yr. 1989-90 in the case of Vardhman Spng. Genl. Mills Ltd. where the Tribunal has directed the AO to recompute and allow deduction under s. 32AB, after verifying whether interest income and dividend on which relief has been claimed formed part of total income of the eligible business computed in accordance with Parts II and III of Sch. VI. These incomes are not linked with the income of eligible business and, therefore, no deduction should be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that it is a small scale undertaking or it has given its machinery on hire to an undertaking which is a small scale undertaking. Therefore, rent on hiring of machinery is not eligible for deduction under 32AB. Likewise, hire charges from the generator (machine) fall in the same category and are not entitled to deduction as such receipts are specifically excluded under the definition of 'eligible profit'. It is not clear as to how and from where the 'rent' was received by the assessee. If the 'rent' is rent for hiring of machinery or plant, it is to be excluded for computing profits of the eligible business. We may add that the Tribunal as per settled law has no power of enhancement of assessment and our above observations should not be construed to suggest enhancement on any ground. In other words, if the lower authorities have allowed any relief to the assessee which is final and contrary to what we have observed above, the said relief cannot be withdrawn on account of what we have stated above in this decision. The authority can only act, if otherwise authorized by law. 28. As regards the second question, our answer is that profit from the eligible business is to be computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head 'profit and gains of business or profession' and out of this income he has either deposited any amount in an account with the Development Bank, as per s. 32AB(1) or has utilized any amount for the purchase of any new ship, new aircraft, new machinery or plant, as per s. 32AB(1)(b), then either the amount so deposited or utilized or a sum equal to twenty per cent of the profit of business as computed as per the accounts of the assessee audited in accordance with sub-s. (5), whichever is less. The profits of business for the purpose of sub-s. (1) shall be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-s. (1) of s. 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of Sch. VI, as increased by the aggregate of items eligible under s. 32AB(3)(i)(ii)(vii). Nothing is brought on record to ascertain whether the provisions written off has become part of profit computed in accordance with requirement of Parts II and III of Sch. VI or not. We do not find copy of audit report and schedule forming part of profit and gains to ascertain whether the depreciation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness, though the income therefrom was declared as income from other sources. In the case before us, no cogent material or evidence has been adduced, whether purchase and sale of units was the business of the assessee; funds were common and investment made in units in the course of carrying on the spinning business. The assessee itself has shown income from units being investment income. In the absence of any cogent evidence or material before us that the purchase and sale of units was (sic) part of business activity of the assessee, profit on sale of these units will fall in the category of eligible business. There is only one transaction for purchase and sale of units and, therefore, we do not agree with authorised representative that the assessee is eligible for deduction in respect of income earned on purchase and sale of units under s. 32AB. A judgment has to be interpreted in the context in which it has been laid out. While holding against the assessee in this regard we rely on the decision in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) in which it has been laid down how a judgment of the apex Court has to be interprete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is derived from eligible business or not and for determining so, the immediate source from which income is generated has to be looked into. Thus, she submitted that interest income and rental income cannot be held to be income derived from the industrial undertaking. Learned authorised representative, on the other hand, submitted that the income was derived from the industrial undertaking. He further submitted that rent includes a sum of Rs. 1,01,624 received from the employees to whom the accommodation belonging to the assessee was given during the course of carrying on the business of the industrial undertaking, while balance was received from SBP for providing ATM. Interest was received on FDRs, details of which are available at p. 13 of the paper book. The assessee received total interest of Rs. 75,422, out of which Rs. 43,843 was allocated to unit-3. Thus, the income was derived from the industrial undertaking. Reliance is placed on the following decisions: (i) Dy. CIT vs. Transpower (P) Ltd. (2001) 72 TTJ (Gau) 867 : (2002) 80 ITD 1 (Gau) (ii) Asstt. CIT vs. Gallieum Equipment (P) Ltd. (2001) 73 TTJ (Del)(TM) 130 : (2001) 79 ITD 41 (Del)(TM); (iii) S. Damanjit Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute profits and gains derived from the export activities of the assessee and so this income cannot be included in the business profits of the assessee for the purposes of computing deduction under s. 80HHC. We also derive support from the judgment of Kerala High Court in the case of Nangi Topen Bhai Co. vs. Asstt. CIT (1999) 157 CTR (Ker) 225 : (2000) 243 ITR 192 (Ker)." We have also gone through the case laws relied upon by learned authorised representative specifically mentioned at the bar that the Tribunal has been provided only with ITRs and ITDs and if any other decision is relied upon, a copy of the same must be filed. In the absence of such copy being filed, we are not able to look into the decision reported in TTJ/Taxman. In the case of Transpower (P) Ltd., the Tribunal allowed deduction on interest income because interest had accrued on fixed deposits in bank made for procuring bank guarantee for obtaining overdraft facility. Thus, FDRs were made as a necessity for carrying on business. In the case before us, no such facts have been brought on record that the FDRs were made as a compulsion to carry on business of the industrial undertaking. FDRs were made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of the electricity company for the purpose of s. 80-I. The assessee cannot get any support from the ratio of this decision because the words used in s. 80HH are 'derived from'. and not 'attributable to'. 'Attributable to is a wider term than 'derived from', as has been interpreted in the case of Sterling Food. The ratio of the decision in the case of Seshasavee Paper Board Ltd. will also not support the case of the assessee because the said case relates to deduction under s. 80-I, where in the year of dispute, the words used in section were 'attributable to' and not 'derived from'. In the said case, the High Court has distinguished the words 'attributable to' and 'derived from'. In the case of 'attributable to', the relevant relief is not confined only to the profits of the priority industry, while it be so in the case of 'derived from'. The ratio of the decision in the case of Associated Flexibles Wires (P) Ltd. also will not support the case of the assessee because there also there was a finding that the assessee made FDRs with the bank out of business compulsions to avail of various credit facilities and, therefore, the Tribunal held that there was a direct nex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the employees amounting to Rs. 1,01,624. Thus, ground No. 2 of the Revenue's appeal is allowed and grounds Nos. 4 and 5 of the assessee's appeal are rejected. 4. Ground No. 3 of the Revenue's appeal and ground No. 6 of the assessee's appeal relate to deduction in respect of articles presented/distributed by the assessee. AO made a disallowance of Rs. 14,33,249 under r. 6B, in respect of 5133 articles presented, after allowing Rs. 50 per article, observing that these were in the nature of advertisement. Before CIT(A), the assessee submitted that 667 cabinet pieces costing Rs. 54,35,303 were given to the dealers for storage of tubes of sewing threads being manufactured by the assessee-company and, therefore, these were in the nature of advertisement. Other items included silver coins presented to customers/dealers. A sum of Rs. 3,11,487 was spent on the occasion of Diwali, out of which a sum of Rs. 3,35,335 had been disallowed by the AO under r. 6B. CIT(A) allowed expenditure incurred on cabinets in toto. Out of the Diwali expenses, he confirmed the disallowance to the extent of Rs. 46,379 and in respect of other gifts items he confirmed disallowance to the extent of Rs. 46,379 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expenditure is in excess of Rs. 50 per clock. We confirm the disallowance made by the tax authorities to the extent of Rs. 94,329 only. Accordingly, ground No. 3 of the Revenue's appeal is rejected and ground No. 6 of the assessee's appeal stands allowed in part. AO is directed to sustain the disallowance under r. 6B only to the extent of Rs. 94,329 out of Rs. 14,33,249. 5. Ground No. 4 of the Revenue's appeal relates to computation of disallowance under r. 6D in respect of expenditure amounting to Rs. 1,79,388. AO noted that tax auditors have worked out the disallowance, as per r. 6D to the extent of Rs. 1,79,388. Before CIT(A) it was submitted that this includes the expenditure tax. CIT(A) accepted the plea and directed the AO to reduce the disallowance by expenditure-tax. After hearing the rival submissions, we find that under r. 6D allowance in respect of expenditure incurred on travelling is restricted. It lays down the limit of the expenditure incurred by an assessee in connection with travelling by an employee or any other person within India or outside India for the purposes of business or profession of the assessee. The expenditure, in our view, includes the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 90,000. AO also noted that the assessee had made a recovery of Rs. 1,530 and, therefore, he worked out total amount of Rs. 2,53,805 after adding depreciation on estimate basis amounting to Rs. 15,000 and ultimately, thus, disallowed a total sum of Rs. 2,53,805 as guest house expenditure incurred by the assessee. CIT(A), in first appeal, upheld the disallowance, on the basis of provisions of s. 37(4) r/w Expln. (ii). Before us, learned authorised representative relied on the order dt. 19th April, 2001 in ITA Nos. 96 and 97/95 for asst. yrs. 1989-90 and 1990-91 in the case of Dy. CIT vs. Punjab Tractors Ltd. and the assessee's own case for asst. yr. 1989-90 in ITA No. 1849 of 1992, copies filed in the paper book. Reliance is further, placed on the decision in the case of JCT Ltd. vs. Dy. CIT (2001) 253 ITR 61 (AT)(Cal). Learned Departmental Representative, on the other hand, relied on the order dt. 14th Feb., 2002, wherein under para. 5.1, the Tribunal has confirmed the disallowance for maintenance of guest house (sic) used by the auditors of the company, after discussing the provisions of ss. 37(4) and 37(5). According to learned Departmental Representative, when there specif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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