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TMI Blog2006 (7) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... the deduction allowable under sub-clause (ii) of clause (b) of section 32AB(1)?" The brief facts necessary for deciding this case are as follows: The assessee is engaged in the plantation business. Apart from their business income, they received the following income from other sources as well. --------------------------------- Rs. Rent 29,606 Interest 6,27,608 Sundry receipts 95,402 --------------------------------- (Sundry receipts are by way of sale of coffee, areca nut and receipt of subsidy from the Tea Board). The assessee in its income-tax return, claimed deduction of an amount of Rs. 37,02,849 under the then existing section 32AB of the Income-tax Act on the basis of the entire income of the previous year. The Assessing Officer allowed the deduction of the amount calculated without including the rent, interest and sundry receipts. The Commissioner (Appeals) agreed with the Assessing Officer. The Tribunal also concurred with the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hagiri's case [2005] 273 ITR 278 (Ker), as also the decision of the Supreme Court in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273, which decision was also sought to be relied on the Kil Kothagiri's case [2005] 273 ITR 278 (Ker). On the other hand, learned standing counsel for the Income-tax Department would contend that only those incomes which would constitute the business income of the company alone can be taken into account for computation of the quantum of deduction under section 32AB and not the income from all sources as contended by the assessee. Standing counsel would argue that Kil Kothagiri's case [2005] 273 ITR 278 (Ker) was wrongly decided and the dictum in Apollo Tyre's case [2002] 255 ITR 273 (SC), was wrongly understood by the Division Bench in Kil Kothagiri's case [2005] 273 ITR 278 (Ker). Standing counsel submits that in Apollo Tyre's case [2002] 255 ITR 273 (Ker) the Supreme Court found that the dividend from investment in UTI was in fact profits and gains of business or profession itself of the company as the assessee-company in that case was conducting the business of investment in the units of UTI as its business along with the business of tyre manufacturing as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto; (d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business; (iii) income derived by a trade, professional or similar association from specific services performed for its members; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm: Explanation 1.- The profits and gains of a business shall include the profits and gains of managing agency. Explanation 2.- Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as 'speculation business') shall be deemed to be distinct and separate from any other business." We shall repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1964 (7 of 1964); (iv) the amounts carried to any reserves, by whatever name called; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; (vi) the amount by way of provision for losses of subsidiary companies; and (vii) the amount or amounts of dividends paid or proposed, if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-section (1) of section 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 receipts of the business or profession carried on by the assessee ...." The deduction as per section 32AB is from the income under the head "Profits and gains of business or profession". From the same 20 per cent, of the "profits of elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits of eligible business or profession is the amount arrived at after deducting the depreciation as per section 32(1) which deduction is permissible only in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. Obviously this depreciation cannot be deducted from rent income, interest income and sundry receipts or from "income from other sources". The issue is put beyond any doubt by a reading of clause (b) of section 3 which says that the profits of eligible business or profession of an assessee for the purpose of subjection (1) shall in case where such separate accounts are not maintained or are not available be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-section (1) of section 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 receipts of the business, or profession carried on by the assessee. Therefore, the profits of eligible business or profession should be those of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m equal to 20 per cent, of the profit of such eligible business as computed in the accounts of the assessee which account has been audited in accordance with sub-section (5) of section 32AB". The Supreme Court further held thus: "The dispute in the present case is in regard to the question whether the assessee's investment in the UTI is business, and if so, is it a business which qualifies to be an 'eligible business' under section 32AB? In regard to the first aspect, we must note that the Tribunal as a question of fact based on material on record has come to the conclusion that the investment in the UTI by the assessee-company is in the course of its business and its business of manufacture and sale of tyres and sale and purchase of units of the UTI are common in nature and both the businesses are intertwined and interlaced. This finding is accepted by the High Court also. We also find that this business of the assessee-company of buying and selling of units is a business as contemplated under section 32AB of the Act. The question then is : is it an eligible business under the said section? The term 'eligible business' is defined under sub-section (2) of section 32AB. As per tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course Bengal and Assam Investors Ltd.'s case [1966] 59 ITR 547, which is a Supreme Court decision cited by the Revenue in support of the proposition that if a company merely acquires and holds shares with the object of receiving dividends it does not carry on business within section 10 and the mere fact that a company is incorporated to carry on investment does not show that it is carrying on that business, which only lends collateral support to its main contention. However, we note with the approval that the Calcutta High Court in the decision in CIT v. Warren Tea Ltd. [2001] 251 ITR 382 has taken the same view as ours. We shall extract the relevant portion from that judgment: "Sub-section (1) of section 32AB provides that a sum equal to 20 per cent, of the profits of business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5) is allowable. Even in the section itself, as quoted above, the words are given, 'Profits and gains of the business or profession'. From a perusal of the records it shows that the assessee is the owner of the tea gardens and it derives income from selling tea leaves. The investment in the shares is not a bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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