Income Tax Appellate Tribunal - Pune
Zf Steering Gear (India) Ltd. vs Deputy Commissioner Of Income-Tax on 28 February, 2000
Equivalent citations: [2001]77ITD279(PUNE)
ORDER
Singhal, Judicial Member
1. The main controversy arising out of this appeal relates to the computation of business profits for the purpose of section 80HHC(3) involving interpretation of sub-section (3) of section 32A of the Income-tax Act.
2. The facts of the case arc in short compass. During the year under consideration, the assessee effected exports of Rs. 4,52,102 in respect of which it claimed deduction under section 80HHC. A Note was submitted by the assessee dt. 18-2-1992 stating that the deduction under section 80HHC has to be worked out as per the profits of the relevant year only, i.e. without setting off the unabsorbed investment allowance of earlier years. However, the Assessing Officer did not accept such proposition, since according to him, deduction was to be allowed with reference to the gross total income as defined under Chapter VI-A. Accordingly, he computed the relief at Rs. 21,738 on the business profits of Rs. 46,71,154 which was arrived at after setting off the unabsorbed in vestment allowance of Rs. 26,22,335 pertaining to the assessment years 1986-87 and 1987-88.
3. The matter was carried before the CIT(A) who opined that deduction under section 80HHC was to be allowed with reference to the profits as computed in accordance with sections 28 to 44 falling under Chapter IV-D. Since section 32A fell within the aforesaid provisions, it was held by him that unabsorbed investment allowance was to be deducted for computing the business profits for the purpose of section 80HHC. Accordingly, he upheld the order of the Assessing Officer on this issue. Aggrieved by the same, the assessee is in appeal before the Tribunal.
4. The learned counsel for the assessee has assailed the order of the CIT(A) by contending that unabsorbed investment allowance brought forward from earlier years has to be set off against the total income of the assessee and not against the business profits under the head "profits from business and profession." He invited our attention to the provisions of sub-section (3) of section 32A which provide that the amount of investment allowance to the extent to which it has not been allowed shall be carried forward to the following assessment year and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income of the assessee assessable for that assessment year. However, it was admitted by him that as-far-as investment allowance for current year is concerned, it has to be deducted while computing the profits for the purpose of section 80HHC, as held by this Bench in the case of Salgaocar Mining Industries Ltd. v. Dy. CIT [1997] 61 ITD 105. On the other hand, the learned D.R. has supported the order of the CIT(A) and also relied on the decision of the Bombay High Court in the case of CIT v. Albright Morarji & Pandit Ltd. [1999J 236 ITR 914.
5. After considering the rival submissions of the parties, we find sufficient force in the contention raised by the learned counsel for the assessee. Under section 80HHC sub-section (1), any person engaged in the business of export is to be allowed a deduction of the profits derived by the assessee from the export of such goods. The profits derived by the assessee from export of goods are to be determined in accordance with the provisions of sub-section (3) which provides a formula based on export turnover and total turnover. Such formula is to be applied to the profits of the business as computed under the head Profits and gains of the business or profession. Such profits are to be computed under Chapter IV in accordance with the provisions of sections 28 to 43C as per section 29. Undoubtedly, section 32A falls between such provisions as mentioned above. In the present case, we are concerned with the unabsorbed investment allowance relating to earlier years and not with reference to investment allowance of current year. There is no dispute that current year's investment allowance has to be deducted while computing the profits under the head "profits and gains or business of profession", as held by this Bench in the case of Salgaocar Mining Industries Ltd. (supra). As-far-as unabsorbed investment allowance is concerned, its treatment has been provided by the Legislature in sub-sec. (3)(ii). The relevant portion of the aforesaid clause provides as under :
"the amount of the investment allowance, to the extent to which it has not been allowed as aforesaid, shall be carried forward to the following assessment year, and the investment allowance to be allowed for the following assessment year shall be such amount as is sufficient to reduce the total income, of the assessee assessable for that assessment year, computed in the manner aforesaid, to nil, and the balance of the investment allowance, if any, still outstanding shall be carried forward to the following assessment year and so on, so,....."
The perusal of the aforesaid provisions clearly shows that the Legislature has provided to set off the unabsorbed investment allowance against the total income of the subsequent years and not against the business profits alone. Total income has been defined as total amount of the income referred to in section 5 computed in the manner laid down in this Act. That means it is the net income which is arrived after considering all the allowances and deduct ions and set off etc. while the profits from business is part of the total income. In our view, if the Legislature had intended to set off such unabsorbed allowances against business profits, it could have said so in clear terms. Therefore, we agree with the view of the learned counsel for the assessee that the Legislature has provided set off of unabsorbed investment allowance against total income of the assessee and not against business profits computed under sections 28 to 43C though the source of such set off is provided in section 32A.
6. The view which we have taken is fortified by the Legislative intent in sub-section 32(2) which provides that unabsorbed depreciation shall be added to the amount of allowance for depreciation for the following previous year and has to be part of that allowance. This clearly shows that the Legislature has treated unabsorbed depreciation in a different manner and specifically has provided that it shall be set off against the business profits of the next year computed under sections 28 to 43. Therefore, if the Legislature could provide such treatment to unabsorbed depreciation, it could have as well provided the same treatment in respect of unabsorbed investment allowance, if it had intended in that manner. That shows that a deliberate departure has been made by the Legislature itself in respect to unabsorbed investment allowance.
7. The decision relied upon by the learned D.R. in the case of Albright Morarji & Pandit Ltd. (supra) is distinguishable on two grounds. Firstly, that decision was rendered in connection with the provisions of section 80HH, the language of which is different from section 80HHC with which we are concerned. Secondly, in that case, the Court was concerned with investment allowance for the current year, while in the present case, we are concerned with unabsorbed investment allowance. Therefore, the said decision of the Bombay High Court cannot be applied to the facts of the present case.
8. In view of the above discussion, it is held that unabsorbed investment allowance cannot be deducted while computing the profits of the business under the head 'profits and gains of business or profession'. Therefore, the order of the CIT(A) is set aside on this issue and the Assessing Officer is directed to recompute the claim of the assessee in accordance with our decision.
9. The next issue relates to the disallowance under Rule 6B. This issue is covered by the decision of the Bombay High Court in the case of CIT v. Allana Sons (P.) Ltd. [1995] 216 ITR 690 wherein it has been held that no disallowance can be made if the articles gifted by the assessee do not carry the logo. The Assessing Officer himself has admitted in his order that there was no such logo on the articles gifted by the assessee. Accordingly, following the aforesaid decision of the Bombay High Court, the disallowance confirmed by the CIT(A) in this regard is hereby deleted.
10. The next issue relates to the computation of relief under section 80-I. The Assessing Officer has excluded the income from interest amounting to Rs. 1,63,548 as, according to him, this income could not be considered as business income derived from the industrial undertaking carried on by the assessee. This has been confirmed by the CIT(A). The relevant details of such income are filed in the paper book at page 1, which are reproduced as under:
Project Collaborator Details of payments Scope Rs.
PP Co-Polymer M/s Process 53,17,801.85 Technology transfer) Project Technimont, Italy Know-how fees.
Engg.
fees 1,53,12,326.47 Rights and licence process know-how and patent -A.F. expansion Du Point USA Process know-how 2.16,35,692.30 Grant of licence Engg. fees 61,65,495.94 Providing engg. information LAB expansion UOP. USA Process and Engg. fees 14.17,830.28 Grant of licence furnishing details Total 4,78,49,146.84
As-far-as interest of Rs. 1,28,787 is concerned, the learned counsel for the assessee has not seriously challenged, since he is not in a position to prove the nexus between the income and the activity carried on by the assessee. However, with reference to the other items, it was submitted by him that these are the business incomes of the industrial undertaking in view of the decision of this Bench in the case of Dy. CIT v. Jagdish Electronics (P.) Ltd. [1998] 66 ITD 542. On the other hand, the learned D.R. has relied on the order of the CIT(A).
11. Rival submissions have been considered. The interest on deposit with MSEB and interest on deposit with Bank of Maharashtra as margin money I alls within the ratio of this Bench in the case of Jagdish Electronics (P.) Ltd (supra). Therefore, to that extent, sums of Rs. 6,110 and Rs. 2,847 would be included in the income of the industrial undertaking. As-far-as interest on deposit with Modern Foundry & Machine Works Ltd. is concerned, the same has not. been seriously challenged by the learned counsel for the assessee and we do not find any nexus between the income of interest and the activity carried on by the assessee. Accordingly, the CIT(A) was justified in excluding the same. For similar reason, interest of F.D.R. amounting to Rs. 4,888 has been rightly excluded by the CIT(A). As-far-as interest on loans given to employees is concerned, we are unable to accept the submission of the learned counsel for the assessee, inasmuch as there is no nexus between the activity carried on by the assessee and the income by way of interest on such loans. Accordingly, it is held that the CIT(A) was justified in excluding this item also. The order of the CIT(A) is accordingly modified and the Assessing Officer is directed to include only the sum of Rs. 6,110 and Rs. 2,847 in the business income of the industrial undertaking. Accordingly, this ground is partly allowed.
12. In the result, the appeal is partly allowed.