VARDHMAN HOLDINGHS LTD. vs. COMMISSIONER OF INCOME TAX RANGE -I LUDHIANA AND ANR

ITA/216/2013HC Punjab & HaryanaPHHC01105071201321 January 2020Author: MR. JUSTICE AJAY TEWARI,MR. JUSTICE AVNEESH JHINGAN11 pages
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What were the facts?

The assessee, Vardhman Holdings Ltd., is in appeal before the High Court of Punjab and Haryana against an order of the Income Tax Appellate Tribunal (Tribunal) dated December 28, 2012. The assessment year in question is 2001-02. The Assessing Officer disallowed various deductions claimed by the assessee, leading to a partly allowed appeal by the first appellate authority. Both the assessee and the revenue filed appeals before the Tribunal, which partly allowed both. The High Court is considering substantial questions of law arising from the Tribunal's order, concerning deductions under Sections 80HHC and 10B of the Income Tax Act, 1961.

What did the High Court hold?

The High Court held as follows: Regarding Question (i) (Rent receipts for Section 80HHC): The Tribunal erred in holding that gross rent receipts from employees should be excluded. The Court, relying on the Supreme Court decision in Acg Associated Capsules P. Ltd. v. C.I.T., Mumbai, held that Explanation (baa) to Section 80HHC requires the deduction of 90% of receipts like rent included in profits. Depreciation is not a similar nature receipt. The Court found no merit in the assessee's ground of appeal on this issue, dismissing it. Regarding Question (ii) and (iii) (Turnover and profits of other eligible units for Section 80HHC): The Court held that profits of units eligible for deduction under Section 10B or 80-IB are to be excluded while calculating eligible profits for deduction under Section 80HHC. This aligns with the Tribunal's view and is upheld. Regarding Question (iv) and (vi) (Interest on delayed payments for Section 10B): The Court upheld the Tribunal's decision to allow interest on delayed payments relatable to export sales under Section 10B. However, the direction for verification was modified to ensure the Assessing Officer assesses the interest received on delayed payments as per Section 10B(4) of the Act. This question is answered in favour of the assessee. Regarding Question (v) (Apportionment of Head Office expenses): The Court held that the apportionment of Head Office expenses among eligible and non-eligible units is justified. This is based on Section 10B(7) read with Section 80-IA(10), which empowers the Assessing Officer to consider reasonable profits in cases of close connection or arranged business transactions that produce more than ordinary profits. The question is answered against the assessee. The operative direction is that the appeal is disposed of in light of these findings.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether gross rent receipts from employees, without adjusting expenses, should be excluded from eligible profits for Section 80HHC deduction. 2. Whether the turnover of a unit eligible for Section 10B deduction should be included in the export turnover for Section 80HHC calculations. 3. Whether profits of a unit eligible for Section 80-IB deduction should be excluded when calculating eligible profits for Section 80HHC. 4. Whether gross interest received from suppliers, without adjusting interest paid on working capital, should be excluded from eligible profits for Section 10B deduction. 5. Whether the Tribunal was correct in apportioning Head Office expenses among units claiming deductions under Sections 10B/80-IA/80-IB when separate books of accounts were maintained. 6. (Substituted for question iv) Whether the ITAT was correct in directing the AO to grant the benefit of interest received/receivable on delayed payments relatable to export sales as opposed to total sales. Assessee's contentions (as inferred from the questions): The assessee argued for the inclusion of gross rent receipts (question 1), inclusion of turnover from Section 10B units (question 2), inclusion of Section 80-IB eligible profits (question 3), inclusion of gross interest without adjustment (question 4), and against apportionment of Head Office expenses (question 5). For question 6, the assessee argued for the benefit of interest on delayed payments relatable to export sales. Revenue's contentions (as inferred from the questions): The revenue argued for the exclusion of gross rent receipts (question 1), exclusion of turnover from Section 10B units (question 2), exclusion of Section 80-IB eligible profits (question 3), exclusion of gross interest without adjustment (question 4), and for apportionment of Head Office expenses (question 5). For question 6, the revenue likely supported the Tribunal's direction regarding interest on delayed payments.

Which sections of the Income-tax Act were involved?

Section 260A,Section 80HHC,Section 10B,Section 80-IB,Section 143(3),Section 28,Section 30,Section 44D,Section 80-IA

AI-generated summary — verify with the full judgment below

ITA No. 216 of 2013 [1]

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 216 of 2013 Date of decision: 21.1.2020 Vardhman Holdings Ltd. .. Appellant v. The Commissioner of Income Tax, Range-I, Ludhiana and another .. Respondents CORAM: HON'BLE MR. JUSTICE AJAY TEWARI HON'BLE MR. JUSTICE AVNEESH JHINGAN Present: Ms. Radhika Suri, Senior Advocate with Mr. Manpreet Singh Kanda, Advocate for the apellant. Mr. Rajesh Katoch, Senior Standing Counsel and Ms. Pridhi Jaswinder Sandhu, Advocates for the respondents. ... AVNEESH JHINGAN, J. The assessee is in appeal under Section 260A of the Income Tax Act, 1961 (for short, 'the Act') against the order dated 28.12.2012 passed by the Income Tax Appellate Tribunal, Chandigarh (for short, 'the Tribunal'). Following substantial questions of law have been claimed: “i) Whether on true and correct interpretation of Section 80HHC, the Income Tax Appellate Tribunal erred in holding that gross rent receipts from employees without adjusting expenses incurred by the employer on running and maintenance of such accommodations are

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