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TMI Blog2000 (11) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that it has been computed in accordance with Parts II and III of the VI Schedule of the Companies Act, 1956. However, the AO considered this contention of the assessee as not acceptable. According to the AO, the deduction under s. 32AB should be made out of the profits and gains of "eligible business" and the business income should be computed with reference to the income computed specifically under the head "profits and gains from business or profession". According to the AO, income from house property and capital gains are assessable under the respective heads and income from dividend and interest is assessable under the head 'other sources'. Therefore, these items are to be excluded from the purview of business income. The assessee's contention before the AO and the CIT(A) was that the profits of 'eligible business' in this context should be taken to mean profits of the assessee-company computed in accordance with the requirements of Parts II and III of the Sch. VI of the Companies Act, 1956 as mentioned in sub-s. (3) of s. 32AB. This being a special provision and the assessee-company being bound by the provisions of Companies Act was entitled to a deduction under s. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case. 5. We have carefully considered the rival submissions, the evidence on record and the ratio of the decisions cited before us and the decisions referred to in the orders of the lower authorities. In order to consider the merits of the assessee's contention in this case, we deem it necessary to reproduce the relevant provisions of s. 32AB as applicable for the asst. yr. 1989-90, in so far as they are pertinent to the issue before us: "32AB. Investment deposit account.—(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 (hereinafter 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 cl. (a), in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch machinery or plant has been allowed or is allowable under this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee; (iv) "Tea Board" means the Tea Board established under s. 4 of the Tea Act, 1953 (29 of 1953); (3) The profits of eligible business of profession of an assessee for the purposes of sub-s. (1) shall,— (a) in a case where separate accounts in respect of such eligible business or profession are maintained, be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-s. (1) of s. 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 meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is because of the fact that s. 32AB appears under Chapter IV of the IT Act entitled "computation of total income" and more specifically under Part 'D' of the same Chapter entitled "Profits and gains of business or profession". The sub-headings given to the various parts of Chapter IV indicate the different heads of income like A—Salaries, B-Interest on securities (now omitted w.e.f. 1st April, 1989), C—Income from house property, D—Profits and gains of business or profession, E—Capital gains. These sub-headings clearly indicate that the respective sections occurring in the parts of Chapter IV apply to the respective heads of income under which the income is to be computed. Therefore, it is clear that the computation of business income has to be done strictly in accordance with the provisions of s. 28 to 44D. Since the income from house property, capital gains and other sources are governed by sections occurring in other parts as mentioned above, the deduction under s. 32AB cannot be extended to the other parts unless it is specifically provided for in the Act. The mere mention of the Companies Act and the audited statement of accounts in sub-ss. (3) and (5) of s. 32AB does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be included in the business income for the purpose of giving benefits of s. 32AB. While doing so, the Court reversed the order of the Tribunal in favour of the assessee. In the circumstances, respectfully following the decision of the Hon'ble High Court in the above-mentioned case, we have to hold that the assessee is not entitled to the deduction under s. 32AB with respect to the income to be assessed under the heads 'Income from house property', 'Capital gains' and 'Income from other sources'. 7. Before parting with this order, we have to record our appreciation at the way in which the issue has been dealt with the Dy. CIT, Special Range-2, Bangalore who made the assessment in this case (referred to as the AO for short) and also by the CIT(A)-I, Bangalore. It is found that the AO in paras 2 to 7 of the assessment order has explained the relevant provisions of the Act in the light of the Explanatory Notes to Finance Act, 1986, bringing out the clear intention of the legislature and has also dealt with each of the arguments advanced by the assessee. The CIT(A) after referring to the arguments of the AO and of the assessee has given an indepth analysis regarding the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is pleaded that there is no justification for the disallowance. On the other hand, the learned Departmental Representative supported the orders of the lower authorities by stating that the expenses not having been incurred for business purposes of the company, it has been rightly disallowed under s. 37. 9. After considering the rival submissions and the evidence on record, we are of the view that the disallowance of telephone expenses in the case of the directors of the company, is not justified in the assessment of the company. As far as the company is concerned, there cannot be any expenses of a personal nature. Hence, the disallowance on the ground that the expenses have been incurred for personal purposes is not justified. At best the facilities given to the directors by way of residential phone can only be treated as a perquisite in their hands insofar as personal use of the telephone by the directors are concerned. However, that should not be a factor for disallowance under s. 37 in the assessment of the company. In this view of the matter, we reverse the orders of the lower authorities and direct the AO to delete the disallowance relating to telephone expenses. ITA 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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