The Income Tax Appellate Tribunal allowed claims for interest on intercorporate deposits and lease rent. The Tribunal erred in allowing these deductions as they were not part of the principal manufacturing activity. The appeal allowed, Tribunal order set aside.
The appeal is allowed and the order passed by the Tribunal is set aside.
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*** THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY**
AND
THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM
+ I.T.T.A.No.254 of 2003
%Date: 12.11.2014
#The Commissioner of Income Tax-I, Hyderabad. …appellant. and $M/s. Globe Organics Limited.
…Respondent ! Counsel for appellant: Sri J.V.Prasad ^ Counsel for Respondent : Sri Pushyam Kiran
< GIST: > HEAD NOTE: ? Cases referred
THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY
AND
THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM
I.T.T.A.No.254 of 2003
JUDGMENT: (Per the Hon’ble Sri Justice L.Narasimha Reddy)
The respondent is a manufacturer and exporter of drugs and intermediaries and the unit was established in an area declared as ‘Backward’. In the income tax returns submitted for the assessment year 1993-94, it claimed deduction under four heads, viz., (a) interest received on letter of credit/margin money, being Rs.4,35,858/(b) interest on intercorporate deposits of Rs.10,30,980/- (c) interest in the form of rebate given by ICICI Bank, being Rs.7,30,000/- and (d) lease rent of Rs.25,000/-. The Assessing Officer disallowed all the claims. In the appeal preferred by the respondent, the Commissioner of Income Tax (Appeals) granted the relief in respect of items (a) and (c). The respondent filed I.T.A.No.1902/Hyd/1996, feeling aggrieved by the denial of relief in respect of (b) and (d) before the Hyderabad Bench ‘B’ of the Income Tax Appellate Tribunal (for short ‘the Tribunal’). Through order, dated 27.11.2001, the Tribunal allowed the appeal. Hence, this further appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’).
Heard Sri J.V.Prasad, learned counsel for the appellant and Sri Pushyam Kiran, learned counsel for the respondent.
Though the Assessing Officer disallowed four claims made by the respondent, the Commissioner granted the relief in respect of two, and the relief, as regards remaining two, was granted by the Tribunal. The order passed by the Commissioner granting relief in relation to items (a) and (c) has assumed finality. We are concerned with the grant of relief as regards items (b) and (d).
The deduction allowed under Section 80HH of the Act is in the form of incentive for establishment of an industry in a backward
area. The interest paid on intercorporate deposits can by no means is said to be an activity of the industry so established. When the making of intercorporate deposits itself is not part of the manufacturing activity, the question of the income derived therefrom being treated as qualified for deduction under Section 80HH of the Act, does not arise.
In I.T.T.A.No.216 of 2003, this Court dealt with the matter and the same factual situation obtains in this case also.
The other item regarding which the Tribunal granted the relief is the lease rent, aggregating to Rs.25,000/-. Necessary facts are not placed before this Court. In case the lease is referable to, or connected with the principal activity of manufacture, the deduction can certainly be allowed. However, if the principal activity is only of manufacturing drugs, it is difficult to infer the leasing of any machinery or premises as part of that activity. At any rate, the Tribunal also did not analyse and record a finding that the leasing was part of the principal activity of the respondent. Therefore, we find that the view taken by the Tribunal cannot be sustained in law.
Hence, the appeal is allowed and the order passed by the Tribunal is set aside. There shall be no order as to costs.
The miscellaneous petitions filed in this appeal shall also stand disposed of.
____________________ L.NARASIMHA REDDY, J.
_____________________ CHALLA KODANDA RAM, J.
Date:12.11.2014 L.R. copy to be marked. GJ
3 issues framed by the court
Whether interest on intercorporate deposits qualifies for deduction under Section 80HH of the Income Tax Act.
Whether lease rent is deductible when the principal activity is manufacturing drugs.
Whether the Tribunal's view that lease rent was connected to the principal activity was supported by findings.
Colour shows how this judgement treated each authority
I.T.T.A.No.216 of 2003Referred¶19
2 provisions across 1 enactments
Commissioner of Income Tax-I, Hyderabad
M/s. Globe Organics Limited
L. Narasimha Reddy
Challa Kodanda Ram
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
