Income Tax Appellate Tribunal - Ahmedabad
Kisan Discretionary Family Trust,, ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before Shri Shri N.S.Saini, Accountant Member and
Shri Mahavir Singh, Judicial Member
IT A No.542 & 608/Ahd/2005
Assessment Year:1996-97
Date of hearing:3.6.09 Drafted: 23.7.09
ACIT, Central Circle- V/s. Kisan Discretionary
1(1), Ahm edabad Family Trust, Nirma
House, Ashram Road
Ahmedabad
Kisan Discretionary V/s. Asst. Commissioner of
Fam ily Trust, Nirma Income-tax, Central
House, Ashram Road, Circle-1(1), Ahmedabad
Ahmedabad
PAN No. AAATK26 54D
(Appellant) .. (Respondent)
IT A No.796/ Ahd/2004 &
C.O.No.158/ Ahd/2007
Assessment Year:2000-01
Date of hearing:18.6.09 Drafted:22.7.09
ACIT, Central Circle- V/s. Kisan Disc. Fam ily Trust,
1(1), Ahmedabad C/o. Nirma House, Ashram
Road, Ahmedabad
Kisan Discretionary V/s. Dy. Commissioner of
Fam ily Trust, Nirm a Incom e-tax, Circle 10,
House, Ashram Road, Ahm edabad
Ahm edabad
P AN No.AAATK2653D
(Appellant) .. (Respondent)
Assessee b y :- Shri S.N.Soparkar &
Him angshu Shah, CA
Revenue by:- Shri N.S.Dayam, CIT, DR
ORDER
ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02
ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 2
PER Mahavir Singh, Judicial Member:-
These two appeals by the Revenue and an appeal of the assessee and Cross Objection (CO) are arising out of the orders of Commissioner of Income-tax (Appeals)-XI, Ahmedabad in appeal No. CIT(A)-XI/81/03-04 dated 10-12-2004. The assessments were framed by the ACIT, Central Circle-1(1) Ahmedabad u/s.143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his orders dated 27-02-2004 and 31-03-2003 for the assessment year 1996-97 and 2000-01.
First we will deal with Revenue's Appeals in ITA No. 796/Ahd/2004 & 542/Ahd/2005.
2. The first common issue in these two appeals of the Revenue is against the order of CIT(A) in allowing the claim of deduction u/s.80IA of the Act on sales tax benefit. The grounds are exactly identical. Hence, we are reproducing the ground raised by the Revenue in assessment year 1996-97 as under:-
"1. The CIT(A) has erred in law and on facts in directing to delete the addition of Rs.94,98,757/- made on account of disallowance of claim of deduction u/s. 80IA of the I.T. Act, 1961 in respect of the profits and gains represented by the sales tax benefit."
3. The brief facts relating to this common issue are that the Assessing Officer while perusing the return of income for assessment year 1996-97 noticed from Note- 4 to the accounts that it has claimed deduction u/s.80-IA of the Act on the sales tax benefit declared in VDIS in 1997, the Note reads as under:-
"Note-4 'Sales tax benefit on the purchase and sales effected from industrial undertaking situated in backward area of Rs.3,80,32,596/- is a capital receipt not exijble to income-tax. Hence the same is claimed as deduction in the return of income."
The Assessing Officer noted that after the decision of Hon'ble Supreme Court in the case of Sahney Steel And Press Works Ltd. and Others v. CIT (1997) 228 ITR 253 (SC) the assessee-company made a disclosure under VDIS, 1997 and claimed deduction u/s.80-IA of the Act on the sales tax benefit disclosed under VDIS Scheme. The AO relying on the decision of Hon'ble Supreme Court in the case of CIT v. Sterling Foods (1999) 237 ITR 579 (SC) disallowed the claim of the assessee. ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 3 4, Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) after considering the submissions of the assessee allowed the claim of the assessee. Aggrieved, Revenue came in appeal before us. Before us Ld. Departmental Representative stated that the finding recorded by the CIT(A) cannot be said to be correct. According to him, the sales tax benefit arising to the assessee, is not directly from the manufacturing activity and is not forming part and parcel of the profits derived from the industrial undertaking as held by the CIT(A) and the sales tax is a state levy and it is nothing to do with the manufacturing activities of the industrial undertaking. He further stated that the assessee as a custodian of the government of Gujarat collects the sales tax and the rates are different for sales inside the state and outside the State and the collection of sales tax is not under the control of the assessee but it is governed by the enactments relating to collection and payment of sales tax i.e. CST and GST. He further stated that the sales tax is collected by the assessee but on account of the subsidy scheme of the government of Gujarat, the assessee is not required to deposit the sales tax in the account of government of Gujarat and only those units located in the backward area are eligible for sales tax benefit who fulfill the conditions laid down under the sales tax subsidy scheme. Thus, according to him, the sales tax benefit is not available to the assessee on account of location of its unit in backward area but it is available as its unit fulfills the conditions laid down in the sales tax subsidy scheme of the government of Gujarat and he referred to page-22 to 29 of assessee's paper book for the sales tax subsidy scheme and page-30 to 32 for the eligibility. According to him, it shows that the immediate source of the sales tax benefit is the sales tax subsidy scheme of the government of Gujarat and not the industrial undertaking and if there was no such scheme or if the assessee did not fulfill the conditions laid down in the subsidy scheme, the assessee was not entitled to the sales tax benefit even though its unit was located in the backward area. Even otherwise, the Ld. DR stated that if the subsidy scheme is withdrawn by whatever reasons, the assessee will not be in a position to get the sales tax benefit even though the unit is located in backward area. Ld. Departmental Representative further stated that the CIT(A) vide para-5 page-5 has allowed the claim of the assessee by holding that sales tax benefit is arising to the assessee directly from the manufacturing activity as the same is forming part and parcel of the profits derived from the industrial undertaking hence the assessee is very much ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 4 entitled to deduction u/s.80-IA of the Act. But according to him, it is an admitted position that the deduction u/s.80-IA of the Act is available only where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking and the entitlement of an assessee for relief u/s. 80-IA of the Act is in respect of the profit derived from his undertaking fulfilling the condition of Section 80-IA(2) of the Act. He further stated that there is no dispute that the assessee's undertaking is not fulfilling the condition of Section 80-IA(2) of the Act but the only dispute is therefore, largely turns on the scope and meaning of the expression derived from used in Section 80-IA of the Act. The word "derived" has not been defined in the Act therefore, its meaning is to be understood as judicially defined. The word "derived" has received judicial interpretation apart from its narrow meaning in the dictionary. The Ld. DR referred to various case laws including the decision of Hon'ble'ble apex court in the case of Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 (SC), wherein the Hon'ble apex court has held:-
"The High Court rejected the submission of the appellant by relying upon the decision of this court in Combay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84, where this court has clearly stated that the expression "derived from" had a narrower connotation than the expression "attributable to" (page 93);
"In this connection, it maybe pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression 'derived from', as, for instance, in section 80J. In our view, since the expression of wider import, namely, 'attributable to', has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity."
The word "derived" has been construed as far back in 1948 by the Privy Council in CIT v. Raja Bhadur Kamakhaya Narayan Singh [1948] 16 ITR 325 when it said (page 328):
"The word 'derived' is not a term of art. Its use in the definition indeed demands as enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the definition."
This definition was approved and reiterated in 1955 by a Constitution Bench of this court in the decision of Mrs. Bacha F. Guzdar v. CIT [1995] 27 ITR 1 at page 7. It is clear, therefore, that the word "derived from" in section 80HH of the Income-tax Act, 1961, must be understood as something which has direct ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 5 or immediate nexus with the appellant's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with Electricity Board cannot be said to flow directly from the industrial undertaking itself.
The learned counsel appearing on behalf of the appellant has referred to several decisions of the Madras High Court in order to contend that the word 'derived from" could be construed to include situations, where the income arose from something having a close connection with the industrial undertaking itself. All the decisions cited by the appellant have been considered by the Madras High Court in the case of Pandian Chemicals Ltd. [1998] 233 ITR 497. We see no reason to disagree with the reasoning given by the High Court in Pandian Chemicals Ltd's case [1998] 233 ITR 497 with respect to those decisions to hold that they do not in any way allow the word "derived" in section 80HH to be construed in the manner contended by the appellant.
The learned counsel for the appellant then contended that having regard to the object with which section 80HH was introduced in the statute book, this court should give a liberal interpretation to the words in a manner so as to allow such object to be fulfilled. The rules of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal, there is no scope for importing any rule of interpretation as submitted by the appellant. In the circumstances of the case, we affirm the decision of the High Court and dismiss the appeal without any order as to costs."
5. On the other hand, Ld. counsel for the assessee, Shri S.N. Soparkar stated that the assessee is carrying out manufacturing activity in industrial area to which provisions of Section 80-IA are applicable. The Ld. counsel stated that, to promote the industrial growth, the employment, as per the scheme of Sate Government, sales tax benefit was granted to industrial units, which set up industrial undertaking in specified backward area, and fulfilled the other norms of the scheme and the sales tax benefit has direct and immediate nexus with the sale of goods manufactured in the unit located in industrial backward area. He stated that the benefit has been derived from the sale of goods manufactured and therefore claim of deduction is direct and correctly made which needs to be allowed and the industrial undertakings itself is source of profit as the sales generated is direct result of the manufacturing activities at the industrial undertaking on which sales ax exemption and thereby additional income to that tune is generated. He stated that the sales tax benefit availed by the assessee being part of revenue receipt have already been offered for ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 6 Income-tax in Return of income and such sales tax benefit is solely attributable to industrial undertaking. According to him, if the assessee was not engaged in industrial activities, there was no question of sales tax benefit being available to the assessee and the said benefits are part of sales itself and therefore the term laid down by the Supreme Court in case of Sterling Food (supra) "derived from", on the facts of this case, is directly in favour of the assessee and finally he stated that the said income, i.e. sales which is inclusive of sales tax benefits is derived from the industrial undertaking only.
6. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order as well as the order of CIT(A). We find that the assessee has availed sales tax exemption under the scheme of sales tax of the government of Gujarat for development of backward area for setting up its manufacturing unit. The assessee has availed sales tax exemption under the scheme and the price of the products charged by it had been inclusive of sales tax. No separate accounting entry, for income included in the sale, was passed and the assessee has not charged sales tax. The increased income to the extent of availment of sales tax exemption had been offered for tax to the Department. Such increase in income on account of sales tax exemption scheme is inbuilt in the sales of the assessee and in case the sales tax has been charged, it would have treated as expense and would have been allowed as such. The Ld. counsel for the assessee before us referred to the scheme for special incentives to Pioneer Units - 1990 to 1995 (G.R. No.3) of government of Gujarat, Industries, Mines and Energy Department while resolution No. INC-1090-1023(3) - 1 dated 16-10-1990, wherein at page-33 of scheme, the sales tax incentive has been described as under:-
"7. TYPE AND QUANTUM OF BENEFITS:
Those units which fulfill the criteria of pioneer status and have been granted registration by the industries commissioner will be eligible for the following benefits:-
(1) Subsidy:- Such unit will be allowed subsidy under capital investment Subsidy scheme 1990-1995 announced vide GR.No.INC/1090/10232(1)/1, dated 16th October, 1990.
ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 7 (2) Sales Tax Incentives:- A pioneer unit set up in the eligible area will be eligible for he composite incentive of sales tax exemption and or sales tax deferment subject to maximum rate of incentive as mentioned below:-
Category Quantum Time Limit
of Area
1. 100% of the fixed capital For a period of 10 years from
Investment the date of commencement of
Commercial production
2. 75% of the fixed capital For a period of 8 years from the
Investment date of commencement of
commercial production.
NOTE :
(1) if a unit reaches admissible amount stated in the col. 2. above before the expiry of the time limit mentioned in col. 3. above, it will not be further eligible for incentives thereafter.
(2) In respect of Sales tax deferment, the amount so deferred will be recovered in six annual installments beginning from the next financial year to the year in which unit reaches the maximum limit of incentive granted to the unit under the Scheme.
(3) Units claiming the incentive under this scheme will not be eligible for sales tax incentives under any other scheme.
(4) In order to obviate the adverse effects of Section 43(B) of Income tax Act, the units covered under Sales Tax Department Scheme will be eligible for interest free deemed loan in lieu of Sales Tax Deferment through GSFC or GHC as the case may be as per this Department Resolution No.INC/1087/143/1 dated 21st March 1988, as amended from time to time."
In view of the above scheme, we find that the eligible units will be availing exemption on transaction made under both the scheme, i.e. exemption and deferment. As per this scheme, the unit can make certain transactions under exemption and certain transactions under the deferment schemes. Under this scheme, the eligible unit will be entitled to purchase free of tax, the raw materials, processing materials or consumable stores or packing materials for any purpose of use in manufacture of goods or packing of goods as manufactured. The goods manufactured out of such inputs shall be allowed to enjoy the benefits by way of sales tax exemption or sales tax deferment. However, the aggregate ceiling indicated under the title. Type and quantum of benefits of this resolution will be applicable to all incentives, which are admissible on purchases as well as on sales. In view of this scheme, the assessee has made sales and charged no tax in view of the exemption provided. The assessee has availed sales tax exemption under the scheme and the price of the products charged by it had been inclusive of sales tax. No separate accounting ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 8 entry, for income included in the sale, was passed and the assessee has not charged sales tax. The sales tax benefit availed by the assessee on account of exemption are part of sales made and accordingly, such sales tax benefit is solely attributable to industrial undertaking. And the sales tax benefit is deductible u/s. 80- IA of the Act. Accordingly, we confirm the order of CIT(A) and this common issue in Revenue's appeals is dismissed.
7. The next issue in the Revenue's appeal in ITA No.796/Ahd/2004 is as regards to the claim of deduction u/s.80-IA of the Act allowed by the CIT(A) in respect of job charges.
8. At the outset, the Ld. counsel for the assessee stated that this issue is covered in favour of the assessee by ITAT Bench "B" in ITA No.4569/Ahd/1992 dated 18-12-1992 in the case of Harsiddh Specific Family Trust, wherein the Tribunal has decided this issue vide para-5.1 as under:-
"5.1. We have heard the rival submissions and perused the facts and materials on record including the detailed paper book submitted by the learned counsel for the assessee. In respect of the job work receipts of Rs.1,67,000/-, the learned counsel relied on the following judicial decisions:-
(1) CIT v/s. J.B. Kharwar & Sons - 163 ITR 394 (2) Nulook (P) Ltd. V/s. CIT - 157 ITR 253 (3) IAC V/s. Varisbha Co. Ltd - 34 ITD 10 (Cal) (4) Nishit Synthetics (P) Ltd. Va. ITO 7 ITD 486 (Ahd) It was submitted by the counsel that this income directly follow from the working of the industrial undertaking and there is no justification for denying deduction u/s. 80-I on such income. In our opinion, the assessee-trust had received this income by resorting to manufacturing activity in its industrial undertaking on behalf of other particulars and therefore, the job work receipts are to be considered as income derived from industrial undertaking. As such, we do not find any infirmity in the order of the first appellate authority in considering these job receipt for deduction while computing allowance u/s.80I of the I.T. Act."
9. We find that the issue of the job charges is squarely covered in favour of the assessee and against the Revenue by the Tribunal's decision, respectfully following the same we dismiss this issue of the Revenue's appeal.
ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 9
10. The next issue in the appeal of Revenue in ITA No.542/Ahd/2005 is as regards to the order of CIT(A) allowing the claim of deduction u/s.80-IA of the Act on the following incomes:-
"1) interest income from Gujarat Pickers of Rs.4027/-
2) interest income from Alpa Marketing Enterprise Rs.24,29,232/-
3) interest from staff Rs.6,009/-"
11. As regards to the interest income from Gujarat Pickers and interest from staff, the Ld. counsel for the assessee has not pressed these issues in view of the smallness of the amounts. Accordingly the same are allowed in favour of the Revenue. As regards to interest income from Alpa Marketing Enterprise, the Ld. counsel stated that the issue is as regards to interest received from outstanding payments receivable from the party on account of sale effected by the assessee as per the rate and terms, which also includes due date of payment. The Revenue has not disputed that this interest is not from trade debtors and accordingly this issue is covered in favour of the assessee and against the Revenue by the jurisdictional High Court in the case of Nirma Industries v. DCIT (2006) 283 ITR 402 (Guj), wherein the Hon'ble' Gujarat High Court has held as under:-
"33. However, the parties having made elaborate submissions, the matter may be examined from a slightly different angle. When the assessee enters into a contract for sale of its products it could either stipulate (a) that interest at the specified rate would be charged on the unpaid sale price and added to the outstanding till the point of time of realization, or (b) that in the case of delay the payment for sale of products worth Rs.100 to carry the sale price of Rs.102 for first month's delay, Rs.106 for the third month's delay and so on. If the contention of the Revenue is accepted, merely because the assessee has described the additional sale proceeds as interest I the case of a contract as per illustration (a) above, such payment would not be profits derived from the industrial undertaking, but in the case of illustration (b) above, if the payment is described as sale price it would be profits derived from the industrial undertaking, this can never be because in sum and substance these are only tow modes of realizing sale consideration, the object being to realize the sale proceeds at the earliest and without delay. The purchaser pays a higher sale price if it delays payment of the sale proceeds. In other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction s to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. It is not the assessee's business to lend funds and earn interest. The distinction drawn by the Revenue is artificial in nature and is neither I consonance with law nor commercial practice."
ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 10 The fact regarding the interest receipts on delayed payment from customers is not disputed by the Revenue. As the issue is squarely covered in favour of the assessee by the Hon'ble jurisdictional High Court in the case of Nirma Industries (supra), respectfully following the same, we dismiss this issue of the Revenue's appeal. Accordingly, this ground of the Revenue's appeal is partly allowed. Now coming to assessee's appeal in ITA No.608/Ahd/2005 and CO 155/Ahd/2007.
12. The first legal issue in assessee's appeal in ITA No.608/Ahd/2005 is as regards to reopening of the assessment u/s.147 of the Act.
13. At the outset, Ld. counsel for the assessee has not pressed this issue, hence, we dismiss this issue of the assessee's appeal as not pressed.
14. The next issue in this appeal of the assessee in ITA No.608/Ahd/2005 is as regards to the order of CIT(A) in not granting u/s.80-IA of the Act on income from detergent division after setting off of losses of other two divisions viz. SSP and Packing Division.
15. The brief facts relating to this issue of the disallowance of claim of deduction u/s.80-IA on income of the Detergent Division. The AO noted in his assessment order that after setting off losses of other two divisions viz. SSP & Packing Division, disallowed the assessee's claim of deduction u/s.80-IA of the Act. According to the AO the assessee has claimed deduction u/s.80-IA of the Act on the profits of detergent unit alone and not on the net profit determined after adjustment of losses of the above two units. It was mentioned by the AO in the assessment order that a plain reading of Section 80AB r.w.s. 80-IA gives rise to the conclusion that only net income which is included under the head "business" u/s.28 will quality for deduction u/s.80-IA. Therefore, according to the AO the assessee was eligible for relief u/s.80- IA of the Act on the net income and not on the gross amount. Therefore, after discussing the issue at length in the assessment order, disallowed the assessee's claim of deduction u/s.80-IA of the Act. Aggrieved, the assessee preferred appeal before CIT(A).
ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 11
16. The CIT(A) confirmed the disallowance made by the Assessing officer by giving following findings in para-5.2 of his appellate order:-
"5.2 I have considered the submissions of the AR of the appellant carefully, I have also gone through the appellate order of the CIT(A)-XII, Ahmedabad filed before me by the AR and the observations of the Assessing Officer in the assessment order./ I do not agree with the contention of the appellant so far as the reliance of appellant upon order of the Ld. CIT -XII, Ahmedabad, is concerned. It is to be said that the said order was passed b him on 1-12- 2003. After the decision of the Supreme Court in the case of IPCA Laboratories 266 ITR 521 (which was passed on 11-03-2004). The issue has been settled and now there is no ambiguity over the matter. Section 80AB has an overriding effect over all the other sections of Chapter VIA. Income has to be computed in accordance with provisions of the I.T Act first, and then deduction is to be allowed. An assessee is eligible for relief / deduction u/s./80IA only on the net income i.e. after the losses are also taken into account. With reference to Section 80-HHC the Hon'ble Supreme Court has held, in the case of IPCA Laboratory Ltd. 266 ITR 521, that the section 80AB has been given overriding effect over all other sections, in Chapter VIA. The Hon'ble Supreme Court held as under:-
"Under Section 80HHC(1), the deduction is to be given in computing the total income of the assessee. In computing the total income of the assessee both profits as well as losses will have to be taken into consideration, Section 80AB is relevant, it reads as follows:-
'80AB, where any deduction is required to be made or allowed under any section included in this Chapter under the heading 'C.- Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amou9nt of income of that nature as computed in accordance under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.' Section 80B(5) is also relevant. Section 80B(5) provides that "gross total income" means the total income computed in accordance with the provisions of the Income-tax Act.
Section 80B is also in Chapter VIA. It starts with the words "where any deduction is required to be made or allowed under any section of this Chapter". This would include section 80HHC. Section 80AB further provides that "notwithstanding anything contained in that section". Thus section 80AB has been given an overriding effect over all other section in Chapter VI-A. Section 80HHC does not provide that is provisions are to prevail over section 80AB or over any other provision of the Act. Section 80HHC would thus be governed by section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 12 contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration."
From the above it is very clear that the appellant can be allowed deduction u/s.80IA only after taking into account the losses of other units. In view of the same AO's action is held justified and I decline to interfere on this issue."
Aggrieved, the assessee came in second appeal before us.
17. After hearing the rival contentions and going through the facts of the case, we find that the lower authorities has rightly determined the deduction u/s.80-IA of the Act on the profit not only for the detergent unit but also adjusted the losses of the above two units. We find that this issue is squarely covered in favour of the Revenue and against the assessee in the case of Synco Industries Ltd. v. ITO and Another (2008) 299 ITR 444 (SC), wherein the Hon'ble apex court held in para-13 as under:-
"13. The contention that under section 80-I(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merit. Section 80-I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking / unit / division, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent, has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand, section 80-I(6) deals with determination of the quantum of deduction. Section 80-I(6) lays down the manner in which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent. The words "includes any profits" used by the Legislature in section 80-I(1) are very important which indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under section 80-I(6), the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deductions under Chapter VI-A. However, this court finds that the non obstante clause appearing in section 80-I(6) of the Act, is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in Section 80-I(1) is required to be comp8ted in the manner provided under the Act which presupposes that the gross total income shall be arrived at after ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 13 adjusting the losses of the other division against the profits derived from an industrial undertaking. If the interpretation as suggested by the appellant is accepted it would almost render the provisions of section 80A(2) of the Act nugatory and, therefore, the interpretation canvassed on behalf of the appellate cannot be accepted. It is true that under section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (6) contemplates that only the profits hall be taken into account as if it was the only source of income. However, section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and, therefore, the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier, section 80-I(6) deals with actual computation of deduction whereas section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and, therefore, while interpreting section 80-I(1), which also refers to gross total income one has to read the expression "gross total income" as defined in section 80B(5). Therefore, this court is of the opinion that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was "nil: the assessee was not entitled to claim deduction under Chapter VI-A which includes section 80-I also."
Respectfully following this decision of Hon'ble apex court, we confirm the orders of the lower authorities and this issue of assessee's appeal is dismissed.
18. The next common issue in this appeal and CO of the assessee is as regards to the order of CIT(A) confirming the status of AOP instead of 'individual' as claimed by the assessee and thereby confirming the disallowance of deduction u/s.80L of the Act.
19. At the outset, we find that this issue is squarely covered in favour of the assessee and against the Revenue in assessee's own case in ITA No.415/Mum/2002 dated 23-03-2005 for the assessment year 1997-98, wherein the Tribunal has held:-
The only grievance though articulated in two inter connected grounds of appeal is as follows:-
"1. In law and in the facts and circumstances of the Appellants case, the learned Commissioner of Income-tax (Appeals) has grossly erred in holding that status of the Appellant trust is Association of Persons. He ought to have appreciated that correct status of the Appellant trust is that of individual and Appellant is entitled for claim of deduction u/s.80L of I.T. Act. ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 14
2. In law and in the facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in rejecting appellant's ground that assessment is abinito void and bad in law on change of status from "Individual" to "Association of Person".
2. Having heard the rival contentions and having perused the orders of the authorities below the issue is covered in favour of the assessee by various binding judicial precedents including:-
1. CIT Vs. Venu Suresh Sanjay Trust and Others - 221 ITR 649 (Mad)
2. CIT Vs. Sowmini Ramesh and Another - 232 ITR 25 (Mad)
3. CIT Vs Venu Suresh Sheela Trust and Others - 233 ITR 99 (Mad)
4. Director of Income-Tax (Exemptions) Vs Shardaben Bhagubhai Mafatlal public Charitable Trust - 247 ITR 1 (Bom)
3. Learned Departmental Representative also fairly accepted the fact that the issue is covered in favour of the assessee by the above decisions. He however dutifully relied upon the orders of the authorities below. Respectfully following the esteemed views of the Hon'ble Bombay High Court, we uphold the grievance of the assessee and direct the Assessing Officer to allow deduction u/s.80L. The assessee will get relief accordingly.
4. The only other issues mentioned before us by the assessee relates to the charging of interest under sections 234B and 234C. As agreed by the Learned Departmental Representative, there cannot be any objection to the prayer. Accordingly, assessee will get consequential relief.
5. In the result, the appeal is allowed in the terms indicated above."
Respectfully following this Tribunal's decision in assessee's own case in earlier year, we allow this common issue of the assessee.
20. The next common issue in this appeal and CO of the assessee is as regards to the order of CIT(A) in confirming the exclusion of the following incomes, while allowing deduction u/s.80-IA of the Act.
i) F.D. Interest Rs. 3,77,106/-
ii) F.D. Interest against L/C Maargin Rs.16,59,000/-
iii) Rent income Rs. 12,000/-
iv) Service Charges Rs. 12,000/-
v) Insurance claim Rs. 1,06,046/-
21. At the outset Ld. counsel for the assessee required only netting should be allowed out of these incomes and the Ld. DR has not objected to the same. ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 15 Accordingly, we are of the view that in case the assessee is able to prove the nexus of expenditure for earning these incomes, the Assessing officer will allow netting only. In view of this principle, this issue is set aside to the file of the Assessing officer. Accordingly, this common issue of assessee's appeal and CO is allowed for statistical purposes.
22. The next issue in assessee's CO No.158/Ahd/2007 is as regards to the order of CIT(A) in confirming that vyaj badla income be assessed under the head income from other sources instead of the claim of the assessee to be assessed under the head 'capital gain'.
23. The brief facts are that the assessee-trust is one of the entities of the Nirma Group including the flag Ship Co. Nirma Ltd., was searched u/s.132 of the Act on 27- 09-2001. During the course of search Annexure-A/7 was seized from the office of Nirma Management Services Pvt. Ltd. and from pages-102 & 114 of this Annexure, it is seen that the assessee-trust has earned Rs.9,79,239/- as interest from Vyaj Badla and in the return of income, this income of Rs.9,79,239/- was shown by the assessee-trust as income from short term capital gain. During the course of assessment proceedings, the bills & contract notes pertaining to the transactions in shares on which short term capital gain has been shown were called for and examined. Further, the assessee-trust was asked to justify its claim that Vyaj Badla income should be treated as STCG. The above mentioned contentions of the assessee are dealt with by the Assessing officer as under:-
(a) The assessee-trust has not refuted that the transactions done by it were that of vyaj badla, the true nature of transactions has also been verified from the bill and contract note.
(b) Further in a vyaj badla transaction the element of risk taking i.e. inherent in any investment is not there. Hence, assessee's contentions that these transactions were of a nature of investment and realization of investment is incorrect.
© Vyaj Badla transaction done under ALBM Mechanism earlier allowed in Indian Stock Exchanges is identical to stock market transaction in shares, financed by lading against security of shares. Hence the correct treatment of income so earned is interest income as in the case of assessee-trust dealing in Vyaj Badla is not a regular business transaction, this income is to be taxed as interest income under the head income from other sources. ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 16 The Assessing Officer treated the income of Rs.9,79,239/- as interest income and taxed the same under the head income from other sources.
24. Aggrieved the as preferred appeal before CIT(A) and CIT(A) confirmed the action of the AO in treating the income as interest income taxable under the head 'income from other sources' by giving following findings:-
"I have considered the facts of the case, the order of the AO, the submissions of the appellant, remand report of the AO and the final reply of the appellant by letter dated 28.11.2003. Looking to the overall circumstances of the case, I am inclined to agree with the reasoning given by the AO for treating the income under consideration as interest income taxable under the head income from other sources.. The income derived by the appellant is not by way of the differences between the sales and purchases price of the shares but the income has arisen by way of Badla rats fixed by the Stock Exchange at the end of each settlement. The amount advanced by the appellant to the Stock Broker is being used by the Brokers in Badla finance. Under the Stock Exchange Rules, the Badla finance has to be backed by transactions in the equity shares. In such transactions, the appellant is not free to sale the scrips at will. The scips are automatically sold at the end of the settlement and after adjusting the Badla rate, the amount available with the Stock Broker is again put to use in the form of purchase of new strips right at the beginning of the next settlement. The sequence of sale and purchase in continuous at the end of settlement and at the beginning of next settlement. The appellant is only getting positive income in the form of Badla rate fixed by the Stock Exchange. However, the return by way of Badla rate may vary for each settlement depending upon the demand and supply of the scrips in the market. In fact the amount put in Badla finance is actually on behalf of some other entities, who are dealing in the stock Market. The Badla finance is required when some entities dealing in stock may not be having finance to obtain the physical delivery or some entities may be having finance, but the scrips are not available for delivery. The element of risk in dealing with shares directly is not there in these type of transactions. The capital gain arises on the differences of sales price and the purchase price. In the case of the appellant, the income is arising by way of adjusted Badla rate. I, therefore, agree with the AO's arguments in the assessment order as well as advances by him in his remand report, which is quit self-explanatory. I, therefore, confirm the finding of the AO on this issue. This ground of appeal is, therefore, dismissed."
25. Aggrieved the assessee came in CO before us. After hearing the rival contentions and going through the case records, we find that the income arisen to the assessee is interest income taxable under the head 'income from other sources' and not by way of difference between the purchase price and sale price of the shares. The income arisen by way of Vyaj Badla rate fixed by the Stock Exchange at ITA No.542, 608/Ahd/2005, 796/Ahd/2004 & CO 158/Ahd/2007 A.Y. 96-97 & 01-02 ACIT CC -1(1) A'bd v.Kisan Discretionary Family Trust Page 17 the end of each settlement is income from other sources. We find that the CIT(A) has recorded a categorical finding that the amount advanced by the assessee to the stock brokers was used by the brokers in the 'Badla' finance. As per the Stock Exchange Rules, the 'Badla' finance is to be backed by transactions of shares and the assessee is not allowed free sale of scrip. As per the Stock Exchange Rules, the scrip are automatically sold at the end of the settlement and after adjusting the badla rates and the amount available with the stock brokers is again put to use for purchase of new scrip at the beginning of next settlements. The sequence of sale & purchase is a continued process at the end of settlement and at the beginning of next settlement. We are of the view that in this way, the assessee gets only income from the Badla rates fixed by the Stock Exchange and there is no element of risks in dealing with shares in these transactions. Accordingly, the CIT(A) has rightly held the 'vyas badla' as income from other sources and we confirm the same. This issue in assessee's CO is dismissed.
26. The next common issue in this appeal and CO of the assessee is as regards to charging interest u/s.234B and 234C of the Act. The Ld. counsel for the assessee fairly stated that this common issue of charging of interest is consequential in nature and accordingly the Assessing officer will charge consequential interest in view of the appeal effect given by him.
27. In the result, assessee's appeal and CO and Revenue's appeal in ITA No.542/Ahd/2005 are partly allowed and that of Revenue's appeal in ITA No.796/Ahd/2004 is dismissed.
Order pronounced in Open Court on 31/07/2009
Sd/- Sd/-
(N.S.Saini) (Mahavir Singh)
(Accountant Member) (Judicial Member)
Ahmedabad,
Dated :31/07/2009
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-XXI, Ahmedabad
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad