Madras High Court
Deputy Commissioner Of Income-Tax, ... vs The United Nilgiris Tea Estate Company ... on 5 November, 2004
Equivalent citations: (2006)203CTR(MAD)336, [2005]273ITR470(MAD)
Author: M. Karpagavinayagam
Bench: M. Karpagavinayagam
JUDGMENT M. Karpagavinayagam, J.
1. The respondent is a Company deriving income from Tea. The assessment was made against the Company for the assessment year 1989-90. The main objection to the assessment order is with regard to the restriction of the claim under Section 32AB by the amount of interest and dividend incomes on the ground that such receipts are not profits of the eligible business. This point was not accepted by the Appellate Authority and the assessment order was confirmed. Consequently, the respondent filed an appeal before the Tribunal. The Tribunal accepted this point and upheld the claim of the assessee in regard to the deduction under Section 32AB and directed the Assessing Officer to recalculate the deduction by including the interest, dividend incomes. Challenging the same, this appeal has been filed by the Deputy Commissioner of Income-tax, Special Range-I, Coimbatore.
2. According to the counsel for the appellant, the interest and dividend income credited in the Profit and Loss Account will form part of the eligible business income under Section 32AB of the Income-tax Act and as such, the order impugned is wrong.
3. The substantial question of law urged by the counsel is this:
Whether on the facts and circumstances of the case, the Tribunal was right in holding that interest and dividend income credited in the Profit and Loss Account will form part of eligible business income under Section 32AB of the Income-tax Act?
4. We have considered the submission made by the counsel for the appellant and also gone through the records.
5. It is the specific case of the respondent herein that once the Company is deriving income from the eligible business, other receipts should be ipso facto regarded as part of such eligible business. It was urged that the profit as computed under Parts II and III of Schedule VI to Companies Act does not lay down any such exclusion by the amount of income assessable under residuary head.
6. Though such a contention was held to be attractive by the Appellate Authority, it rejected the said argument on the reason that the receipts by way of interest, dividends, etc. from investments from the profits of ineligible business would not form part of the eligible business profit and as such, the interest or dividend cannot be considered as receipts from the trade investments. This finding, in our view, is wrong for the following reason.
7. Section 32AB which deals with investment deposit account in sub-section (1) provides that, "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, --
shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of--
(i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or
(ii) a sum equal to twenty per cent of the profits of business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less."
Sub-section (3) of Section 32AB sets out the manner in which the profits of eligible business or profession of an assessee for the purposes of sub-section (1) is to be calculated. It provides, "(3) The profits of eligible business or profession of an assessee for the purposes of sub-section (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-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."
8. The reading of the above section would indicate that the calculation required to be made for the purpose of the above section is to commence with the figure representing the profits of the eligible business as computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act. From that figure, the amount equal to the depreciation computed in accordance with section 32(1) of the Income-tax Act is to be deducted. After such deduction, that amount is to be increased by the aggregate of the amounts set out in (i) to (vii) of section 32(3). A sum equal to 20 per cent of that amount is to be allowed as a deduction under Section 32AB(1)(ii).
9. The determination of the profit required to be made in accordance with Parts II and III of the Sixth Schedule to the Companies Act is required to be made after taking into account all the activities of the assessee governed by the Companies Act, as the profit and loss account required to be drawn up by a company must necessarily reflect all the income and all the expenditure incurred by the company in that year.
10. Section 32AB does not require the profit for the purpose of Section 32AB(1) to be calculated in accordance with the provisions of the Income-tax Act. All that it provides is that the calculations should first be made in accordance with the Companies Act and the requirements more specifically required of Parts II and III of the Sixth Schedule to the Companies Act.
11. Therefore, there is no scope at all for importing the concept of different heads of income found in the Income-tax Act, into the calculation of profit required to be made in terms of Section 32(3) of the Act which makes the calculation made in accordance with the Companies Act, the starting point for making the deductions and additions provided for in Section 32AB after which the sum of 20 per cent referred to in Section 32AB(1) is to be ascertained.
12. The Appellate Authority, while confirming the assessment order, has excluded the dividend, interest, etc. reflected in the receipts relating to the profits of eligible business. By doing so, the Appellate Authority has failed to give effect to the plain language and the mandate of Section 32AB(3).
13. While dealing with a similar question, this Court in Carborandum Universal Ltd. v. Commissioner Of Income-Tax (265 I.T.R. 372), has observed as follows:
"Having regard to the content of Section 32AB(3) and the scheme of the whole section, it is clear that it is the computation made in terms of Schedule VI of the Companies Act that has to be the starting point, and all the things included in that computation are required to be taken note of and not to be disregarded except to the extent specifically provided for in Section 32AB(3)."
14. This finding by a Division Bench of this Court will squarely apply to the present facts of the case also. Therefore, there is no infirmity in the order of the Tribunal. Consequently, the appeal is dismissed.