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TMI Blog2017 (3) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (2012 (2) TMI 101 - SUPREME COURT OF INDIA). The AO himself has not treated the interest income as income from other sources. He treated it as a business income, but did not grant deduction under section 80IB(11) of the Act. Since this interest income has direct nexus with the activities of the assessee, it only goes to reduce the expenditure incurred on the loans availed from the bank. The assessee could reduce the net interest expenditure. In other words, if bank has charged 12% and it got subsidy of 5%, then it had charged the rate of 7% on the profit & loss account, then it would have enhanced its profit to this extent, and therefore, this interest subsidy is to be considered as eligible for grant of deduction under section 80IB(11) of the Act. Eligible profit to claim deduction under section 80IB(11) - interest payable to the partners on their capital contribution and remuneration reduction - Held that:- Direct the AO not to reduce interest payable to the partners on their capital contribution and remuneration from the eligible profits for grant of deduction under section 80IB because, it is the discretion of the assessee to pay interest and remuneration to partners or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, this discount has a direct nexus with activities of the assessee and it is treated as business profit. It deserves to be considered for grant of deduction under section 80IB. This aspect has been considered by the ITAT in the case of Sagar Foods Vs. ITO, ITA No.750/Ahd/2014. Accordingly, we allow the claim of the assessee and direct the AO to consider sum of ₹ 1,37,012/- as eligible for grant of deduction under section 80IB(11A) of the Act. 6. Next item on which deduction was denied to the assessee is interest received from PGVCL. The ld.counsel for the assessee conceded that in view of the judgment of the Hon ble Gujarat High Court in the case of CIT Vs. Nirma Ltd., 367 ITR 12 (Guj) only net interest income is to be excluded for grant of deduction under section 80IB. We remit this aspect to the AO. He shall exclude net interest income from PGVCL for admissibility of deduction under section 80IB. 7. Next item which is disputed is a sum of ₹ 4,64,048/-. It is interest subsidy received from Govt. of Gujarat. 8. The facts with regard to this issue are that interest subsidy was provided by the Govt. of Gujarat through District Industrial Centre for setting up a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the partners. He reduced this amount from eligible profits, and thereafter granted deduction. We find that this issue has been considered by the ITAT in the case of Sagar Foods Vs. ITO (supra) and it has been held that there is no provision in the Act which authorizes the AO to thrust these amounts upon the assessee and reduce eligible profits for grant of deduction under section 80IB of the Act. The discussion made by the Tribunal in the case of Sagar Foods Vs. ITO(Supra) on this issue deserves to be noted. It reads as under: 16. We have heard rival contentions and perused the record placed before us. In these two ground nos. 3 4 grievance of the assessee against ld. Commissioner of Income Tax(A) s order for confirming the action of ld. Assessing Officer in notionally reducing the deduction u/s 80IB of the Act by ₹ 13,44,287/- on account of interest and remuneration payable to partners as per partnership deed. We observe that assessee being a partnership firm is carrying on its business under the partnership deed dated 3.6.2008 placed at pages 57 to 69 of the paper book. In this partnership deed as per the clauses 8 9 partners are entitled to remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount not deductible more specifically section 40(b) deals with disallowance of remuneration beyond specified limit. Providing of remuneration or interest is an expenditure which in the case of assessee has not been booked in the books of account and, therefore, ld. Assessing Officer cannot foist upon to provide a notional amount of interest and remuneration. This view finds support from the decision of Coordinate Bench in the case of Tulsa Ram Kanhiyalal Sons (2008) SOT 402 (Jodhpur) wherein similar issue came up before the Bench which reads as follows : whether since partnership deed revealed that the parties on mutual consent could add, amend, vary or alter any of the terms of partnership, Assessing Officer could not have compelled the assessee to charge interest or remuneration by invoking section 40(b) of the Act more particularly when it was not mandatory but discretionary for assessee . The said issue was decided in favour of assessee by deciding as follows:- 6.1 have heard the parties and carefully perused the material on record. It is correct that the terms of partnership provided payment of interest at the rate of 12 per cent on capital of partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax vs. Mundra Packaging Industries in Tax Appeal No.615-617 of 2006 wherein following questions of law were proposed :- [A] Whether on the facts and in the circumstances of the case the Appellate Tribunal is right in law in allowing the appeal of assessee on the ground that when it is not open to the assessee to disclaim any allowance/expense and profit and gain of an industrial undertaking covered under chapter VI-A of the IT.Act, 1961 has to be computed as per the provisions of section 29 to 43 of the I.T.Act, 1961 which includes section 40 for interest/remuneration to partners as per Partnership Deed ? [B] Whether on the facts and circumstances of case and in law, the Appellate Tribunal is justified in granting relief despite the fact that it amounts to tax evasion in the hands of the partners by passing on interest/remuneration in the guise of share of profits and it is colourable device as held by the Hon'ble Supreme Court in the case of Mc Dowel Co.Ltd. V/s. Commercial Tax Officer (1985) 154 ITR 48 (SO? [C] Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in accepting assessee's deliberate an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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