Madras High Court
Commissioner Of Income Tax vs M/S.Tractors And Farm Equipments Ltd on 13 July, 2004
Author: P.D.Dinakaran
Bench: P.D.Dinakaran
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED:13/07/2004
CORAM
THE HONOURABLE MR.JUSTICE P.D.DINAKARAN
AND
THE HONOURABLE MR.JUSTICE N.KANNADASAN
T.C. (Appeal) No.369 of 2004
Commissioner of Income Tax
Chennai. .. Appellant
-VS-
M/s.Tractors and Farm Equipments Ltd.,
Chennai-600 034. .. Respondent
Appeal under Section 260 A of the Income Tax Act, 1961 against the
order of the Income Tax Appellate Tribunal Madras Bench "B" dated 09.0 9.2002
in I.T.A.560/MDS/94.
!For Appellant : Mr.J.Narayanaswamy
^For Respondent : --------
:O R D E R
(Order of the Court was made by P.D.DINAKARAN, J,.) Heard. The appeal is preferred against the order of the Income Tax Appellate Tribunal Madras Bench "B" dated 09.09.2002 in I.T.A.560/94. The following substantial questions of law are raised for consideration:-
1.Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that expenditure incurred on distribution of seeds to the extent of Rs.3,07,000/- can be attributable to the business carried on by the assessee company is valid in law?
2.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in allowing subscription to three organisations is valid in law?
3.Whether, on the facts and in the circumstances of the case, the appellate tribunal is right in law holding that dividend, interest on deposits and other incomes received from the company are to be excluded while computing the income from eligible business under Section 32 AB of the Income Tax Act is valid in law?
3.1. In brief, assessee is carrying on business of Farm equipments.
The assessee, in the relevant assessment year imported certain seeds which had CIF value of Rs.1,21,530/-. The assessee had a model farm at Pudukuppam in which it used the remaining seeds. The assessee took the assistance of its group companies M/s.T.Stanes & Co.Ltd., for distribution of seeds. The said company incurred expenditure of Rs.3 ,07,000/- and claimed the same from the assessee. The assessing officer disallowed the claim of the amount as business expenditure, as the purchase and sale and distribution of seeds had no connection with the business activity, viz., manufacture and sale of tractors and farm equipments.
3.2. The assesee filed an appeal before the Commissioner of Income Tax (Appeals), wherein the Commissioner, by an order dated 27.12.1993 dismissed the appeal. Aggrieved by the same, the assessee filed a further appeal before the Income Tax Appellate Tribunal. The tribunal, allowed the appeal. Hence, the present appeal by the appellant/ Revenue
4. The first substantial question of law raised in this appeal as to whether the expenditure incurred on distribution of seeds to the extent of Rs.3,07,000/- can be attributable to the business carried on by the assessee company, is liable to be answered against the revenue in view of a decision reported in 238 ITR 1042 (COMMISSIONER OF INCOME TAX -vs- TRACTORS AND FARM EQUIPMENTS LIMITED), wherein this Court held as follows:-
"Once it was found that the expenditure incurred was one which was laid out wholly and exclusively for the purpose of the assessee's business, the deduction had to be allowed. The expenditure, though incurred in relation to agricultural land, was for the purpose of assesee' s business and was entitled to deduction under Section 37 of the Income Tax Act, 1961."
4.2. The first substantial question of law, is therefore, answered against the revenue.
5. The second question of law as to whether Income Tax Appellate Tribunal was justified in allowing subscription to three organisations is valid in law, is also answered as against the department in view of a decision reported in 238 ITR 149 (COMMISSIONER OF INCOME TAX -vs- SOMANY PILKINGTON LTD.,), wherein the Apex Court held that the payment made towards the building fund of the Chamber of Commerce does not give rise to any question of law as the same was based on findings of facts and appreciation of evidence. Accordingly, the second question raised in the appeal is answered against the appellant/revenue.
6. The third substantial question of law as to whether dividend, interest on deposits and other incomes received from the company are to be excluded while computing the income from eligible business under Section 32AB of the Income Tax Act, is answered in negative against the department in view of the decision reported in 255 ITR 273 "APOLLO TYRES LIMITED -vs- COMMISSIONER OF INCOME TAX", wherein the Apex Court held as follows:-
"A perusal of Section 32AB, as it stood at the relevant time, shows that if an assesee 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 assesee has out of such income utilised any amount during the previous year for the purchase of new plant or machinery then it is entitled to set off a sum equal to 20 per cent of the profit of such eligible business as computed in the accounts of the assesee which account has been audited in accordance with sub-section (5) of Section 32AB.
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 3 2AB? 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 assesee 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 interwined 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:
it is an eligible business under the said Section? The term ' eligible business' is defined under sub-section (2) of Section 32AB. As per that definition, all business of an assessee-company will be an eligible business unless it falls under the type of business enumerated in sub-clauses (a) and
(b) of Section 32AB(2). It is nobody's case that this business of the assesee-company is one of those business which fall under business enumerated in sub-clauses (a) and (b) or Section (2) of Section 32AB. Therefore, there is no doubt that the business of the assesee-company is an eligible business.
The fact it is shown under a different head of income would not deprive the company of its benefit under Section 32AB. Therefore, there is no doubt that the business of the assesee-company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under Section 32AB so long as it is held that the investment in the units of the UTI by the assessee-company is in the course of its "eligible business". Therefore, in our opinion, the dividend income earned by the assesee company from its investment in the UTI should be included in computing the profits of eligible business under Section 32AB of the Act." (emphasis supplied)
7. Accordingly, all the three substantial questions of law are answered against the appellant/Revenue.
Index : Yes Internet: Yes KST.
To:
1.The Assistant Registrar,Income Tax Appellate Tribunal Madras Bench "C", Rajaji Bhavan III Floor, Besant Nagar, Chennai-90.
2.The Secretary, Central Board of Direct Taxes, New Delhi.
3.The Commissioner of Income Tax (Appeals)-V Madras-600 034.
4.The Deputy Commissioner of Income Tax Special Range-I, Madras.