MILTON LAMINATES LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-4

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TAXAP/1833/2010HC GujaratGJHC24027644201030 November 2013Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.P.DHOLARIA3 pages
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What did the High Court hold?

The High Court held that issues 2 and 3 were squarely covered by the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. vs. Commissioner of Income Tax (2012) 343 ITR 89 (SC). Consequently, these questions were decided in favour of the assessee. The Court clarified that under Explanation (baa)(1) to Section 80HHC, 90% of only the net interest, which has been included in the profits of the business, is to be deducted, not the gross interest. The ITAT's order on these points was quashed, and the Assessing Officer was directed to recompute the deduction under Section 80HHC accordingly. As a result of the decision on issues 2 and 3, issue 1 became academic and was not dealt with. The appeal was allowed to the extent of the decision on issues 2 and 3.

What were the facts?

The assessee, Milton Laminates Limited, filed a Tax Appeal before the Gujarat High Court challenging an order of the Income Tax Appellate Tribunal (ITAT) dated 24.10.2008, passed in ITA No. 2053/AHD/2004 for Assessment Year 1997-98. The appeal was admitted on substantial questions of law. The revenue was represented by the Assistant Commissioner of Income Tax, Circle-4. The procedural history involves the assessee filing an appeal against the ITAT's order, which is the subject of this High Court judgment.

What were the issues?

The Tribunal had to decide three substantial questions of law: 1. Whether the ITAT was correct in holding that a mistake in the assessment order was apparent on record and an obvious, patent mistake, and that the Assessing Officer's view under Section 154 was not debatable. 2. Whether the ITAT was correct in excluding 90% of 'Other Income' (Interest, Misc. Income, and Insurance Claim) from business profits when calculating deduction under Section 80HHC. 3. Whether the ITAT was correct in not allowing 'netting off' of interest income against interest expenditure. Assessee's Contentions: The assessee argued that the ITAT's decision on issues 2 and 3 was incorrect. The revenue's contentions are not explicitly recorded for these issues, but their overall participation suggests they supported the ITAT's order. For issue 1, the assessee contended that the mistake was not apparent and debatable, implying the Section 154 order was wrongly passed. The revenue likely argued that the mistake was indeed apparent and rectifiable under Section 154.

Which sections of the Income-tax Act were involved?

Section 154,Section 80HHC

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
O/TAXAP/1833/2010 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL  NO. 1833 of 2010 FOR APPROVAL AND SIGNATURE:  HONOURABLE MR.JUSTICE M.R. SHAH ­ sd/­ and HONOURABLE MR.JUSTICE R.P.DHOLARIA ­ sd/­ ============================================= Whether Reporters of Local Papers may be allowed to  see the judgment ? NO To be referred to the Reporter or not ? NO Whether their Lordships wish to see the fair copy of the  judgment ? NO Whether this case involves a substantial question of law  as to the interpretation of the constitution of India,  1950 or any order made thereunder ? NO Whether it is to be circulated to the civil judge ? NO ============================================= MILTON LAMINATES LIMITED....Appellant(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE­4....Opponent(s) ============================================= Appearance: MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA  Date : 30/11/2013

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH)

1.0.

Feeling   aggrieved   and   dissatisfied   with   the   impugned judgment and order passed by the  learned Income Appellate Tribunal (hereinafter referred to as the ITAT) dated 24.10.2008 passed in ITA No.2053/AHD/2004 for the AY 1997­98, the assessee has preferred the O/TAXAP/1833/2010 JUDGMENT present Tax Appeal.

2.0.

While   admitting   the   present   Tax   Appeal   following substantial question of law are framed. (i) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that mistake in the assessment order was apparent on record and was an obvious  and  patent mistake and that  the view  taken by the Assessing Officer in the order passed under Section 154 of the Income Tax Act, 1961 was not debatable at all? (ii) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in excluding 90% of the ‘Other Income’ viz. Interest, Misc. Income and Insurance Claim from the profits of the Business while calculating the deduction u/s. 80HHC of the Act? (iii)  Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not allowing the “Netting Off” of interest income against interest expenditure?

3.0.

Heard Shri S.N. Soparkar, learned Senior Advocate for the assessee  and Shri  M.R. Bhatt, learned Senior advocate for the revenue.

4.0.

At the   outset,  it   is  required to   be  noted that   so  far  as question nos. 2 and 3 are concerned, they are squarely covered by the decision of the Hon’ble Supreme Court in the case of   ACG Associated aforesaid issues / questions are now not res­integra. In the case of  ACG Associated Capsules Pvt. Ltd (supra)  it is held by the Hon’ble Supreme Court in the said decision that 90% of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads “Profits and gains of business or profession” is to be deducted under clause (1) of Explanation (baa) to O/TAXAP/1833/2010 JUDGMENT Section 80HHC for determining the profits of business.

5.0.

Applying the law laid down by the Hon’ble Supreme Court in the case of  ACG Associated Capsules Pvt. Ltd (supra) the aforesaid question are held in favour of the assessee and order passed by the ITAT in ITA No.2053/AHD/2004 for AY 1997­98 is hereby quashed and set aside. Now, the AO to recompute the deduction under Section 80HHC of the   Income   Tax   Act  considering   the   law   laid   down   by   the   Hon’ble Supreme   Court   in   the   case   of    ACG  Associated  Capsules  Pvt.  Ltd (supra) which is reproduced herein above.

6.0.

In of the decision on merits with respect to question nos. 2 and 3, question no.1 become academic and therefore, the same is not dealt with.

7.0.

With this, present appeal is allowed to the aforesaid extent. No costs. sd/­ (M.R.SHAH, J.) sd/­ (R.P.DHOLARIA,J.) Kaushik

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