DY. C.I.T. (ASSTT) vs. BISLERI BEVERAGES LTD.(FORMER-LY KNOWN AS PARLE INTL. LTD.)

O/TAXAP/124/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 124 of 2001 With TAX APPEAL NO. 125 of 2001 With TAX APPEAL NO. 126 of 2001

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/- and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 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 5 Whether it is to be circulated to the civil judge ? No ================================================================ DY. C.I.T. (ASSTT)....Appellant(s) Versus BISLERI BEVERAGES LTD.(FORMER-LY KNOWN AS PARLE INTL. LTD.)....Opponent(s) ================================================================ Appearance: MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1 MR JP SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 9

O/TAXAP/124/2001 JUDGMENT

Date : 11/11/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.Heard learned Counsel appearing for the respective parties. 2.By way of these Appeals, the Department has challenged the judgment and order of the Tribunal as per the following details :- Tax Appeal ITA No. Assessment Year 124/2001 521/Ahd./1994 1987 – 1988 125/2001 135/Ahd./1992 1988 – 1989 126/2001 1501/Ahd./1994 1990 – 1991 3.This Court while admitting the matters on 03.08.2001 had framed the following common questions :- “Whether the Appellate Tribunal is right in law and on facts in directing not to exclude income from interest dividend hire charges and profit on sale of investments while allowing deduction under Section 32AB?” 4.The brief facts giving rise to the above Tax Appeals are as under :- a. The assessee company filed its returns of Page 2 of 9

O/TAXAP/124/2001 JUDGMENT income as well as the returns of income in the year 1987. The assessment was reopened and notices u/s. 148 were issued, in response to which the assessee company filed its return of income. Notices u/s. 143(2) and 142(2) were issued in compliance. Deduction u/s. 32AB The assessee company claimed deduction u/s. 32AB. The deduction u/s. 32AB is allowable on priority industries only, unless it is considered as a small scale industrial undertaking. The undertaking shall be deemed to be a small scale industrial undertaking if the value of plant and machinery as on the last day of the previous year for the purpose of business of the undertaking does not exceed Rs.35 Lakhs. During the previous year under consideration, the total cost of plant and machinery is more than Rs.35 Lakhs and hence, the assessee is not a small scale industrial undertaking. It is case of the assessee that the assessee is engaged in the manufacturing of aerated water covered by Item 5 of Schedule XI of the IT Act. The assessee company submitted that the company is engaged in the business of manufacturing of Non-Alcoholic Beverage and Page 3 of 9

O/TAXAP/124/2001 JUDGMENT also in the business of manufacture of mango pulp. The assessee further stated that none of its units manufacture aerated waters. During the re-assessment proceedings, it was found that most part of the income on which deduction u/s. 32AB is claimed pertains to the three units in which the assessee company is manufacturing concentrate of soft drinks which does not have any other facility except for preparing aerated water. Without prejudice to the above, it is submitted that the assessee company had wrongly claimed deduction u/s. 32AB as it had not excluded interest income, dividend income, hire charges and profit on sale of investment which it should have excluded from the profits for the purpose of computing profits for claim u/s. 32AB. Even if the assessee would have been allowed deduction u/s. 32AB it ought to have been restricted to 20% of profit after reducing interest income, dividend hire charges and profit on sale of investment. However, since deduction u/s. 32AB is not allowed to the assessee due to the reasons mentioned above, the assessee's wrong computation of deduction u/s. 32AB will not have any effect. Page 4 of 9

O/TAXAP/124/2001 JUDGMENT Disallowance under Rule 6B The assessee had incurred expenses on articles

presented

intended

for presentation which are in excess of Rs.50/-. Since the expenses have been incurred on articles presented for advertisement and they are covered under Rule 6B of the I.T. Rule, it will be disallowed and added in the income of the assessee company. Deduction u/s. 80HHC The assessee had claimed deduction u/s. 80HHC. On scrutiny of details it is seen that the total income of the assessee which has been considered for arriving its income from export activity includes incomes like dividends, hire charges, profit on sale of investment and interest income. Where the first three have been excluded by the assessee itself from the profit for the purpose of working out deduction u/s. 80HHC, it has not excluded interest income which it should have excluded. As per provision of Section 80HHC, deduction under this Section is allowed only in respect of income from business and profession. The assessee's Representative had stated that the interest income is part of its business income. However, the same is not acceptable because Page 5 of 9

O/TAXAP/124/2001 JUDGMENT company is not engaged in the business of money lending and therefore, the interest income is to be treated as income from other sources. 5.In the above backdrop of facts, learned Counsel for the appellant Mr. Nitin K. Mehta has submitted that the ITAT has committed an error in relying upon the judgment in the case of Commissioner of Income Tax v. Appollo Tyres Ltd. reported in 237 Income Tax Reports 706 and in the case of Apollo Tyres Ltd. v. Commissioner of Income-Tax reported in 255 Income Tax Reports 273. 6.As against the above, learned Advocate Mr. J.P. Shah has relied on the judgment of the Hon'ble Calcutta High Court in the case of J. Thomas and Co. (P) Ltd. v. Commissioner of Income-Tax reported in 275 Income Tax Reports 467, against which the Special Leave Petition which was preferred was dismissed. 7.In the aforesaid circumstances, it is necessary to go through the findings of the Income Tax Appellate Tribunal which reads as under :- “14. We have considered the rival submissions and have also gone Page 6 of 9

O/TAXAP/124/2001 JUDGMENT through the orders passed by the AO as well as the CIT(A) alongwith the paper book running into 45 pages filed by the assessee. In this connection it will be relevant to observe that at page 26 of the paper book the assessee has filed an extract of the Board Meeting held on 14-1-1989 wherein it is observed as under :- “Market Reports of 'BISCA' were discussed and it was noted that Noodles with Dehydrated Vegetable were considered as acceptable in the market, accordingly trial production of March, 1988 Noodles has been finally accepted for commercial production with Dehydrated Vegetables since 22nd November, 1988.” A perusal of the above indicates that although there is mention that the trial production was started in March, 1988, commercial production commenced only from 22-11-1988. There is no reason whatsoever indicated in the Minutes as to why, if in fact trial production has taken place in March 1988, the commercial production was delayed by almost 8 months. As has been noted by the CIT(A) in his order, the capacity of plant is to produce 2500 kg. Noodles per day and the raw materials like Maida etc. which is claimed to have been purchased for commencement of trial production is only 360 kg. alongwith the other ingredients claimed to have been brought in small quantity and the CIT(A) has rightly concluded that the trial production cannot be carried out from 26-3-1988 to end of the accounting year with such a small amount of raw materials and as such, Page 7 of 9

O/TAXAP/124/2001 JUDGMENT we are of the opinion that the Departmental

Authorities

are justified in coming to the conclusion that the assessee has failed to satisfactorily prove that the trial production has in fact started. There is no evidence like production reports indicating the quantity of raw material consumed and production of Noodles and the names of the dealers to whom the alleged cups of Noodles

were

distributed

for marketing, and Gate Pass Books in proof of the fact that the trial production was sent outside the factory premises or any sample packings which were specifically asked for by the CIT(A) to be produced before him. In this view of the matter we will uphold the findings of the CIT(A) in this regard that the assessee is not entitled to depreciation as well as the claim of expenses in relation to the alleged trial production which is not supported by any positive evidence. Accordingly, both these grounds are dismissed. 15. In the result, all the appeals are partly allowed.” 8.Having heard learned Advocates for the parties and considering the facts of the three appeals, we are of the view that all the Appeals deserve to be dismissed. Hence, the answer is in negative against the Department and in favour of the Assessee. Sd/- Page 8 of 9

O/TAXAP/124/2001 JUDGMENT (K.S. JHAVERI, J.) Sd/- (K.J.THAKER, J) CAROLINE Page 9 of 9