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High Court of Delhi
SANJIV KHANNA & V. KAMESWAR RAO, JJ.
Commissioner of Income Tax – Appellant
Versus
M/s. Kelvinator of India Ltd. – Respondent
ITA Nos. 165 & 170 of 2001
Decided on: 19-01-2015
Income Tax Act - Revenue Appeals - Section 260A - Assessment Years 1989-90 and 1990-91 - Deductibility of guest house expenses under Section 37(4) - Permissibility of interest on FDR, miscellaneous interest, interest from customers, and dividend under Section 80I - Deduction under Section 32AB - Aggregation of profits and losses of different businesses - Eligible business or profession - Quantum of deduction under Section 32AB - Deduction under Section 32AB to be computed with reference to the profits earned by the eligible business - Deduction under Section 32AB not to be allowed where there is no profit in an eligible business or there is a loss - Deduction under Section 32AB to be quantified with reference to the profits of eligible business or profession - Aggregation not permissible - Deduction under Section 32AB to be computed in accordance with Schedule VI of the Companies Act - Income from business alone to be included for calculating deduction under Section 32AB
Fact of the Case:
Revenue has preferred appeals under Section 260A of the Income Tax Act in the case of Kelvinator of India Ltd. (now known as Whirlpool India Ltd.) for assessment years 1989-90 and 1990-91. The appeals pertain to the deductibility of guest house expenses under Section 37(4), permissibility of interest on FDR, miscellaneous interest, interest from customers, and dividend under Section 80I, and the deduction under Section 32AB. The questions of law framed were disposed of and decided in favor of the appellant Revenue and against the respondent assessee. The surviving questions for consideration related to the permissibility of deduction under Section 32AB to the assessee in this case.
Finding of the Court:
The Tribunal affirmed the findings of the Commissioner of Income Tax (Appeals) and decided the issue in favor of the assessee. The Tribunal held that the benefit of Section 32AB would be available to all business income from whatever source, other than those mentioned in sub-section (a)(b) of clause (1) of sub sec.(ii) of the said section. The Tribunal also held that for the purpose of deduction under Section 32AB, the profit of the eligible business is not to be computed in accordance with the provisions of the Income Tax Act but is to be computed in accordance with the requirement of the sixth schedule to the Companies Act. The Tribunal also decided that the only income from the business of the assessee himself and not any other income of the assessee could be included for calculating deduction under section 32AB of the Act.
Issues: The issues involved in the case were the deductibility of guest house expenses under Section 37(4), permissibility of interest on FDR, miscellaneous interest, interest from customers, and dividend under Section 80I, and the deduction under Section 32AB.
Ratio Decidendi: The deduction under Section 32AB is to be computed with reference to the profits earned by the eligible business. The deduction under Section 32AB is not to be allowed where there is no profit in an eligible business or there is a loss. The deduction under Section 32AB is to be quantified with reference to the profits of eligible business or profession. Aggregation of profits and losses of different businesses is not permissible for the purpose of calculating deduction under Section 32AB. The deduction under Section 32AB is to be computed in accordance with Schedule VI of the Companies Act. Only income from the business of the assessee himself and not any other income of the assessee could be included for calculating deduction under section 32AB of the Act.
Final Decision: The Tribunal decided the issue in favor of the assessee and against the Revenue. The appeals were accordingly disposed of in favor of the assessee.
Sanjiv Khanna, J.
1. Revenue has preferred these two appeals under Section 260A of the Income Tax Act, 1961 (Act, for short) in the case of Kelvinator of India Ltd. (now known as Whirlpool India Ltd.). These appeals pertain to assessment years 1989-90 and 1990-91. The order impugned, common to both appeals, passed by the Income Tax Appellate Tribunal (Tribunal, for short) is dated 30th August, 2000.
2. By order dated 6th December, 2001, the following substantial questions of law were framed:-
ITA 170/2001 (Assessment Year 1989-90)
“(A) Whether ITAT is correct in law in deleting the addition of Rs.7,28,400/- being the guest house expenses relying on its earlier order when the same are not accepted by the Department and the same expenditure is clearly disallowable u/s 37(4) of the Act?
(B) Whether ITAT was correct in law in taking into consideration interest on FDR, Misc. Receipts and interest from customers on delayed payments for the purpose of Section 80-I of the Act?
(C) Whether ITAT was correct in law in holding that the deduction u/s. 32AB was available on the profits of industrial undertaking and not on the aggregate profit of the assessee?"
ITA 165/2001 (Assessment Year 1990-91)
“(A) Whether ITAT is correct in law in deleting the addition of Rs.51655/- being the depreciation on guest house when the same is clearly disallowable u/s 37(4) of the Act?
(B) Whether ITAT is correct in confirming the order of CIT(A) and thereby allowing the expenditure of Rs.1,88,610/- incurred by the assessee on rent and repairs of the Guest House when the same is clearly disallowable u/s 37(4) of the Act?
(C) Whether ITAT is correct in law in taking into consideration interest on FDRs. Misc. Receipts, interest from customers on delayed payments and dividend for the purpose of Section 80-I of the Act?
(D) Whether ITAT was correct in law in taking into consideration amount of interest on debentures, loans and inter corporate deposits and dividend for the purpose of computing the deduction u/s. 32AB?"
3. Questions no. (A) and (B) in ITA 170/2001 and question (A), (B) and (C) in ITA 165/2001 were disposed of and decided by order dated 14th February, 2014, in the following manner:-
“The learned counsel for the parties submits that the first two questions framed in the present appeals are covered. So far as question No.1 i.e. the deductibility of guest house expenses under Section 37(4) is concerned it is not disputed that the matter is covered by the decision of the Supreme Court in Britannia Industries Ltd. vs. CIT and Ors., (2005) 278 ITR 546 (SC). The question is accordingly answered in terms of the said decision, in favour of the revenue and against the assessee.
Question No.3 in ITA 165/2001 corresponds to question No.2 in ITA 170/2001. This pertains to permissibility of interest on FDR, on miscellaneous interest, on delayed payments and their eligibility under section 80I of the Act. It is not disputed that so far as the first limb i.e. interest received from customers on account of late payment beyond the credit period goes, the matter is covered against the revenue in the decisions of this Court reported as CIT V. Advance Detergents Ltd., (2011) 339 ITR 81 and CIT V. Jackson Engineers Ltd., (2012) 341 ITR 518. Accordingly, it is held in favour of the assessee that such interest received from customers due to late payment beyond credit period is permissible as a business income and entitled to benefit under section 80(I). As far as the second limb i.e. interest on FDR, bank guarantees, deposits and miscellaneous receipts are concerned, the benefit of section 80I would be not available in view of the conclusion in CIT V. Shri Ram Honda Power Equipment and Ors., (2007) 289 ITR 475. The assessee would be entitled to clam a limited benefit of the expenditure of net interest by application of principles/conclusions Nos. 8 and 9 in Shri Ram Hond
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