IMPORTANT POINT
The court established that deductions under the Income Tax Act should consider the net income derived from industrial undertakings, reinforcing the principle of allowing deductions for expenses directly related to business operations.

ORDER :

Bhargav D. Karia, J.

[1] Both these Tax Appeals are admitted on the following substantial questions of law. The writ petitions are pending with the prayer to accept and approve Form 1 and 2 of the petitioner and settle the dispute of pending Tax Appeals under the Direct Tax Vivad se Vishwas Act, 2020 (for short, “DTVSV Act”) and the Rules framed thereunder.

[2] With the consent of learned advocates of both the parties, Tax Appeals and writ petitions are taken up for hearing and depending upon the outcome of the Tax Appeals, prayers made in the writ petitions shall be considered.

TAX APPEAL NO.781 OF 2009 WITH R/SPECIAL CIVIL APPLICATION NO.19378 OF 2021:

[3] Tax Appeal No.781 of 2009 is admitted by order dated 30th August 2010 on the following proposed substantial questions of law for the Assessment Year 1996-97:

“(a) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in directing to allow deduction under Section 35AB of the Income Tax Act, 1961 though the business of the concerned unit had not commenced during the year under consideration?

(b) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in directing to exclude only the net income from FDR interest while computing deduction under section 80HH and section 80I of the Income Tax Act, 1961?

(c) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that interest on income from insurance claim, truck hiring charges and truck rent is derived from industrial undertaking?

(d) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in treating the miscellaneous income being commission, discount charges, sale of wastages and diesel sales as income derived from industrial undertaking?

(e) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the assessee was entitled to deduction of technical know-how fees under section 35AB of the Income Tax Act, 1961?”

[4] At the outset, both the learned advocates for the parties submitted that all the questions are covered in favour of the assessee by judgement and order passed in various Tax Appeals in the case of the assessee.

[5] So far as question No.(a) is concerned, the same pertains to deduction under Section 35AB of the Income Tax Act, 1961 (for short “the Act”). The Tribunal has followed its decision in assessee’s own case for the Assessment Year 1999-2000 in ITA No.175/Ahd/2003 wherein the decision of ITAT Hyderabad in the case of VBC Industries ltd vs. DCIT 48 ITD 292 (Hyd) was followed.

[6] This Court, in Tax Appeal No.45 of 2007 arising from ITA No.175/Ahd/2003 vide order dated 7th June 2017, has decided the question as under:

“6. As noted, the assessee was engaged already in the business of manufacturing soap. In order to set up soda ash manufacturing plant, the assessee acquired technical knowhow by making lumpsum payment. Had the new business of the assessee completely independent, unconnected and separate, we would have considered the Revenue's contention of the applicability of section 35AB of the Act further. However, in the context of allowing deduction of interest on the borrowed funds for the soda ash manufacturing unit against the income of the existing business of manufacturing soap, this Court had made following observations in case of Commissioner of Income Tax vs. Nirma Ltd (supra).

“6. Whether the Appellate Tribunal is right in law and on facts in deleting the disallowances of interest from debtors of Rs.33,63,494/-, Misc. income in respect of Printing charges recovered of Rs.45,326/- in respect of Kanpur Division, made by AO for the purpose of calculation of deduction under Sections 80I, 80IA & 80HH of the IT Act and confirmed by CIT (A) while relying upon its own decisions in the cases of Nirma Ltd