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TMI Blog2017 (11) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of Section 115J and granting benefit for initiation of the entries, it is investment of surplus funds of the respondents which is not part of the business income. Therefore, the same proviso will not apply in the facts of the case. - Decided against assessee. - D. B. Income Tax Appeal No. 355 / 2011, D. B. Income Tax Appeal No. 537 / 2011, D. B. Income Tax Appeal No. 22 / 2015 - - - Dated:- 12-9-2017 - K. S. Jhaveri And Vijay Kumar Vyas, JJ. For the Appellant : Ms. Parinitoo Jain with Ms. Shiva Goyal For the Respondent : Mr. Mahendra Gargieya ORDER 1. Since these three appeals arise out of the same order they are being decided by this common judgment. 2. By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and allowed the appeal of the assessee modifying the order of CIT partially. 3. This Court while admitting the ITA No.355/2011 has framed following substantial question of law: Whether in the facts and circumstances of the case the ITAT is justified in considering the interest as part of the book profit in contravention of Section 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le with assessee. In this background, as held earlier, income from bank FDRs etc. cannot said to be business income and the same is to be treated as income from other sources. The following case laws are also relied upon. I Madhya Pradesh State Industries Corporation Ltd. Vs. CIT (1968) 69 ITR 824 (MP). II Shamas Tabrez Vanti (In Re) (2005) 273 ITR 299 the Authority of Advance Ruling. III Murli Investment Company vs. CIT, 167 ITR 368 (Raj.) IV CIT vs. Rajasthan Land Development Corporation 211 ITR 597 (Raj.) V CIT vs. Monarch Tools Pvt. Ltd. (2002) 260 ITR 258. Considering, these facts the remuneration to partners is calculated as under:- Net Profit as per P L a/c (Before appropriation) Rs.15,14,59,810/ - Less Income chargeable to tax under income From other sources (Interest from bank FDRs) Interest from other sources Rs.2,16,07,375/- ₹ 4,43,714/- + 41,551/- (-) ₹ 2,20,51,089/- ₹ 41,551/- Add. Donation as per Computation (+) ₹ 16, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are. derived from . In our view, the words derived from are of restricted meaning, and are not as wide as are attributable to . The standalone provision of Section 80HHC of the Act has to be construed on its own wordings. A distinction sought to be made in respect of the definition of profit of the business under sub-section (baa) of the Explanation, to mean the profits of the business as computed under the head Profits and gains of business of profession which incorporates the entire procedure for and gains of business or profession , which incorporates the entire prodeure for computing the business income under Section 28 to 44 of the Act. Dehors Section 80HHC of the Act, the consistent approach is that where the statutory provision takes of income derived form the business activity in question, the nexus theory should be applied in order to determine whether a particular item of income is business income or not. 41. While applying the direct and proximate nexus test, we are of the view that where the interest earned does not have direct and proximate nexus, with the income form the business or export, the interest cannot be deducted as income from export un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of ₹ 8,06,22,369/-, the allowable partners remuneration is arrived at ₹ 3,23,01,448/- whereas the assessee has claimed the remuneration at ₹ 3,92,48,924/-. The excess partners remuneration to the extent of ₹ 69,47,476/- is disallowed and added in the income of the assessee. This being a wrong claim, proceeding u/s 271(1)(c) of IT Act, 1961 is also initiated. With these remarks the income of the assessee is computed as under:- Total income as per ITNS-150 dated 24.4.2007 Rs.57972440/- Add 1. Disallowed out of telephone expenses as discussed in para-I Rs.69,772/- 2. Disallowed out of interest payment as discussed in para-II Rs.6,000/- 3. Disallowed out of function expenses as discussed in para-III Rs.1,25,484/- 4. Disallowed out of insurance expenses on the vehicles as discussed in para-IV Rs.6,770/- 5. Addition on account of wrong claim of partners remuneration as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rajuddin Brothers vs. Commissioner of Income Tax (2012) 80 DTR 46 (Cal) which reads as under:- The said chapter nowhere provides that method of accounting for the purpose of ascertaining net profit should be the only income from business alone and not from other sources. Section 29 provides how the income from profits and gains of business or profession should be computed and this has to be done as provided under Section 30 to 43D. By virtue of Section 5 of the said Act that total incomes of any previous years includes all income from whatever source derived. Thus for the purpose of Section 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/or book-profit. The said section nowhere provides as rightly pointed by Mr.Khaitan, learned Senior Advocate that the net profit as shown in the profit and loss account not the profit computed under the head-profit and gains of business or profession. 16. The 3rd judgment which has been relied on it in the case of Apollo Tyres Ltd. vs. CIT (2002) 255 ITR 273/122 Taxman 562 (SC), wherein it has been observed as under:- 5.For deciding this issue, it is necessary for us to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the AO to re-scrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of Companies Act. In our opinion, reliance placed by the Revenue on sub-s. (1A) of S. 115J of the IT Act in support of the above contention is misplaced. Sub-s. (1A) of s.115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company s income for levy of income tax. Beyond that, we do not think that the said sub-section empower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning, as such, does not provide much of assistance. Then in Re Arthur Average Assocn. For British, Foreign Colonial Ships, Ex p. Hargorove Co. (1875), L.R. 10 Ch.App. 545, the meaning of word gain has been given as acquisition, and has no other meaning. Gain is something obtained or acquired, and is not limited to pecuniary gain. Regarding profit , in general, the profit means the price received over the cost of purchasing and handling the goods, it means pecuniary gain, as held in Stratton vs. Cartmell, 42 A. 2d 419, 422, 114 Vt. 191. In Oliver vs. Halstead, 86 S.E. 2d 858, 859, 196 Vz. 992, the word profit , as ordinarily used, is held to mean, the gain made upon any business or investment, and does not include compensation for labour. Then in George E. Warren Co. vs. U.S., D.C. Mass, 76 F. Supp. 587, 591, it has been held, that Profits is capable of numerous constructions, and for any given use, its meaning must be derived from the context. Likewise, in Gulf Refining Co. vs. Stanford 30 So. 2 d 516,517, 202 Miss. 602, 173 A.L.R. 1099, it has been held, that profit is an elastic and ambiguous word, often properly used in more than one sense; its meaning in a written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as the decision of the Special Bench in Indian Communication Network (P) ltd. vs. IAC (Supra), which have all remained unchallenged. 19. He also drew our attention to Section 115J which reads as under:- 115J. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income as computed under this Act in respect of any previous year relevant to the assessement year commensing on or after the 1st day of April, 1988 (but before the 1st day of April, 1991) (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (1A) Every assessee, being a company, sale, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part-II and III of Schedule VI to the Companies Act, 1956. Explanation-- For the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and reducing the net profit by the amounts referred to in clauses (I) and (ii)] attributable to the business the profits from which are eligible for reduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the matter specified in sub section (3) or subsection (3A) of Section 80HHC or sub-section (3) of section 80HHD as the case may be; or] (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to sub-section (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable. (2) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) or section 72 or section 73 or Section 74 or subsection (3) of section 74A or sub-section (3) of section 80J] 20. In view of above, it is contended that the Tribunal has not committed any error. 21. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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