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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 ..... Tea and Coffee Estate Co. Ltd. [2005] 273 ITR 278 (Ker), on the same point as in this case. The Income-tax Appellate Tribunal, Cochin Bench, referred the following question of law for the opinion of this court under section 256(1) of the Income-tax Act, 1961: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profits of eligible business computed in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act, 1956, should be reduced by income from coffee sales, areca nut sales, rent receipts, interest and subsidy from Tea Board for the purpose of computing 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule to the Companies Act. Parts II and III to the Sixth Schedule to the Companies Act lay down the requirements as to the profit and loss account. Therefore all income which can be included in the profit and loss account of the assessee-company has to be taken into account for the purpose of computing the quantum of deduction, learned counsel for the assessee submits. Counsel for the assessee heavily relies on the decision of the Division Bench in Kil Kothagiri'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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto; (c) any person, by whatever name called, holding an agency in India for any part 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956 (1 of 1956), as increased by the aggregate of- (i) the amount of depreciation; (ii) the amount of income-tax paid or payable, and provision therefor; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax 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 profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 32AB the Legislature wanted "profits from business or profession" alone to be included in the profits of eligible business or profession but computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act and not the net profits of the company including profits from other sources also, for the purpose of arriving at the 20 per cent, deduction allowable under section 32AB(1). This is all the more so because as per sub-section (3) of section 32AB the profits 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at decision in relation to section 32AB which reads thus: "A perusal of section 32AB, as it stood at the relevant time, shows that if an assessee has a total income including income chargeable to tax under the head 'Profits and gains of business or profession' and if the income from such business is derived from an 'eligible business' and if the assessee has out of such income utilised any amount during the previous year for the purchase of new plant of machinery then it is entitled to a set off of a sum 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT [2004] 267 ITR 121 (Cal), Britannia Industries Ltd. v. Joint CIT [2004] 271 ITR 123 (Cal), J. Thomas and Co. P. Ltd. v. CIT [2005] 275 ITR 467 (Cal), CIT v. Parle Biscuits Ltd. [2006] 282 ITR 547 (Bom) and Protos Engineering Co. P. Ltd. v. Deputy CIT [2006] 282 ITR 550 (Bom). In view of the conclusion we have arrived at as above we do not think it necessary to go into each and every one of the same in detail since those decisions are decisions of other High Courts not binding on us either way except of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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