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TMI Blog2016 (9) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... his view is not contrary to or in conflict with the judgment of the Division Bench in CIT vs. Avery Cycles Industries Limited ( 2006 (9) TMI 96 - PUNJAB AND HARYANA HIGH COURT ). At the cost of repetition, the Department in that case did not make an application similar to the one made by Mr. Klar before us. Nor did the Department in that case agree that a fresh assessment order would be passed in accordance with the correct position in all respects relating to the assessment. There is no warrant for knowingly including amounts under a wrong head. To insist upon an error being continued invites the authorities and the court to endorse the error. There is nothing in law or in principle that requires or even permits this. There is nothing in law or in principle that prohibits the authorities under the Act or the Court from returning a finding regarding the correct head under which the income ought to be assessed and then directing the Assessing Officer to pass a fresh assessment order in accordance with the finding for all purposes. This course commends itself to us. Mr. Mittal submitted that under sub-section (3) of Section 80HHC the profits derived from export of goods or merchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 19-9-2016 - MR. S.J.VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Mr. Zora Singh Klar, Senior Standing Counsel For The Respondent : Mr. Akshay Bhan, Senior Advocate with Mr. Alok Mittal, Advocate S.J. VAZIFDAR, CHIEF JUSTICE : This is an appeal against the order of the Tribunal relating to the assessment year 1989-90. By an order dated 11.08.2003 this appeal was admitted on the following questions of law:- (1) Whether, on the facts and in the circumstance of the case, the ITAT was right in holding that interest from others and also from IDBI constitute profit from the business for the purpose of computing deduction under Section 80HHC ? (2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that for the purpose of computing deduction u/s 32AB, all the receipts including non-business receipts viz the interest from others of ₹ 1,05,50,306/-, the interest from IDBI of ₹ 4,14,375/-, the rent receipt of ₹ 2,07,584/- and the dividend income of ₹ 19,52,108/-, form part of the Profit of eligible business ? The answer to either of the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed by the Assessing Officer under the head Profits and gains of business is factually incorrect. In this regard, he invited our attention to that part of the assessment order where the assessee's claim under section 80HHC was dealt with. It is mentioned that the business profits as calculated while computing the deduction under Section 32AB would be followed. The assessment order while dealing with the assessee's claim for deduction under section 32AB, excluded the said income on the ground that it is not business income. The said interest was also not considered as business income. The assessment order, however, does not record that the said interest was not assessed as income from business. The exclusion of the said interest while computing the deductions claimed under Section 32AB and 80HHC does not indicate that the income from interest was not computed under the head Profits and gains of business while computing the income. It merely indicates that it was excluded while computing the deductions claimed under sections 32AB and 80HHC. 6. Mr. Alok Mittal, the learned counsel appearing on behalf of the respondent relied upon para 4(i) of this appeal where it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of money lending being its business. If it is not, the interest must be computed under the head Income from other sources . The Assessing Officer also noted that in the previous assessment year, namely, Assessment Year 1988-89, the CIT (A) held that interest received from loans and advances given to Directors or individuals or other sister concerns for any liability paid on behalf of certain parties to be income from other sources and, accordingly, excluded the same from the eligible profits to which Section 32AB is applicable. If that is correct, it must also be excluded from the eligible profits to which Section 80HHC is applicable. 11. Mr. Mittal, however, contended that the assessee s Memorandum of Association and in particular clause 9 to 10 thereof entitles it to lend money and to make investments. We will assume that to be so. It would make no difference. Merely because the Memorandum of Association of a company entitles it to carry on a particular activity, it does not follow that it, in fact, does so. The Memorandum of Association only entitles a company to carry on activities mentioned therein. A company is not bound to carry on all the activities mentioned in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he items, provided for in the definition. A perusal of the assessment order shows that while dealing with the deduction under Section 80HHC of the Act, receipt of interest by the assessee from IT Department, on securities from Punjab State Electricity Board and on security deposit for car was held to be not connected with the business activity and the AO treated the same as income from other sources. However, while computing the income from business or profession, the amount of interest so earned by the assessee, as mentioned above, was taken as part of the business income only and the same was not reduced therefrom for dealing under the head Income from other sources . While considering the appeal filed by the assessee on this issue, the CIT(A) rejected the same. Before the Tribunal, the assessee succeeded. 14. Once at the time of passing of the assessment order in computing the income from business or profession, the amount of receipt of interest, as mentioned above, has been shown and assessed as income from business or profession, there is no reason for reducing the same out of the income from business or profession for the purpose of calculation of deduction under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee did not constitute business income and is, therefore, liable to be taxed under the head Income from other sources . He stated that the Revenue would press for the interest to be computed under the correct head, namely, Income from other sources and not under the head Profits and gains of business for all purposes and not merely for the purpose of sections 32AB and 80HHC. A statement to this effect was not made to the Division Bench in CIT vs. M/s Avery Cycles Industries Limited (supra). The case is, therefore, distinguishable for this reason. 15. For the same reasons, the judgment of the Bombay High court in Alfa Laval India Ltd. vs. Deputy Commissioner of Income tax (2004) 266 ITR 418 is distinguishable.It was held:- In our opinion, the submissions made on behalf of the assessee deserve to be accepted. In the present case, the assessing officer has computed the income by way of interest from the customers, sales tax set off, claims, refunds, etc. under the head Profits and gains of business or profession . To put it differently, the Assessing Officer has not assessed the interest income from customers, sales tax set off, etc. under the head Income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It would, in fact, endorse and perpetuate the error in all aspects of the assessment order. 17. Mr. Klar mentioned that as a matter of course several Assessing Officers do not assess the income under the correct heads on the presumption that it would make no monetary difference, i.e. , it would be tax-neutral. He submitted that this is the reason why in several cases although the Assessing Officers come to the conclusion that the income falls under one head, while passing the final assessment order, they do not take the trouble of mentioning the amount under the correct head of income. If that is so, it is erroneous. 18. Firstly, the assessment order must reflect the correct position. Secondly, it is not always that a computation under the wrong head would have no tax effect. For instance, a loss under one head may not be permitted to be carried forward and adjusted against the loss under another head. Further, an error in including the income under the wrong head would result in multiple errors as the case before us itself demonstrates. On account of the income being computed under the wrong head of income in the computation of income, the error is carried forward while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would follow the answer to question No.1. Mr. Mittal, however, raised an additional contention based on Section 32AB as regards this question. 24. Section 32AB, as it then was and so far as it is relevant, read as under:- Investment deposit account 32-AB. .- (1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head Profits and gains of business or profession , has, out of such income,- (a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipt of the business or profession carried on by the assessee. 25. Mr. Mittal submitted that even if under the Income Tax Act, the income falls under the head Income from other sources and not under the head Profits and gains of business , the assessee would be entitled to a deduction on the amount of profit computed in accordance with Part-II and Part-III of the VIth Schedule of the Companies Act. He based his contention essentially on sub-section (3)(b) of Section 32AB which admittedly is applicable to the assessee s case. 26. Firstly, it is necessary to note that sub-section (1) makes it clear that Section 32AB is applicable to an assessee whose total income includes income chargeable to tax under the head Profits and gains of business or profession . The last words of the opening part of sub-section (1) out of such income make this clearer. What follows is in respect of income chargeable to tax under the head Profits and gains of business or profession . Clearly, therefore, it is business income only that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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