RICKMAN ALUMINIUM PVT. LTD. vs. INCOME TAX OFFICER

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TAXAP/358/2006HC GujaratGJHC24037344200614 November 2014Bench: HONOURABLE MR. JUSTICE KS JHAVERI,HONOURABLE MR. JUSTICE K.J.THAKER6 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the issue involved in these appeals is governed by its own decision in Nirma Industries Ltd. v. Deputy Commissioner of Income-Tax, [2006] 283 ITR 402 (Guj.). In that case, the Court had held that interest received from trade debtors towards late payment of sales consideration is to be included in the profits of the industrial undertaking when computing the special deduction under Section 80-I (now Section 80-IA). The Court reasoned that such interest is a mode of realizing sale consideration, akin to a higher sale price due to delayed payment, and therefore, it is derived from the business of the industrial undertaking. Since the revenue's counsel could not dispute this precedent, the substantial question of law was answered in favour of the assessee and against the Revenue. The appeals were allowed accordingly, with no specific operative directions beyond allowing the appeals.

What were the facts?

The appeals concern assessment years (AY) 1997-98 and 1998-99. For AY 1997-98, the assessee, Rickman Aluminium Pvt. Ltd., filed a return of NIL income, which was initially processed at Rs. 14,96,270. After an order under Section 154 revised the income to NIL, an escapement of income was noted, leading to a reopening of assessment under Section 148. A return of NIL income was again filed. For AY 1998-99, the assessee filed a return of NIL income, processed at NIL. Scrutiny was initiated under Section 143(2). Appeals to the CIT(A) were partly allowed, but the appeal for AY 1998-99 was dismissed. The Income Tax Appellate Tribunal (ITAT) dismissed the assessee's further appeals for both AYs. The present appeals are filed by the assessee against the ITAT's orders.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that while computing deduction under Section 80-IA of the Income Tax Act, 1961, interest received from trade debtors towards late payment of sales consideration is required to be excluded from the profits of the industrial undertaking, as the same cannot be said to have been derived from the business of the industrial undertaking? (Mixed question of law and fact, turning on Section 80-IA). Assessee's Contention: The assessee relied on the Gujarat High Court's decision in Nirma Industries Ltd. v. Deputy Commissioner of Income-Tax, [2006] 283 ITR 402 (Guj.), which held that interest received from trade debtors for late payment of sales consideration should be included in the profits of the industrial undertaking for the purpose of special deduction under Section 80-I (now Section 80-IA). Revenue's Contention: The learned advocate for the Revenue was not in a position to dispute the assessee's contention, acknowledging that the issue was governed by the High Court's decision.

Which sections of the Income-tax Act were involved?

Section 80-IA,Section 143(1)(a),Section 154,Section 148,Section 143(2),Section 142(1),Section 80-I

AI-generated summary — verify with the full judgment below

O/TAXAP/358/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 358 of 2006 With TAX APPEAL NO. 359 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 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 ? 5 Whether it is to be circulated to the civil judge ? ================================================================ RICKMAN ALUMINIUM PVT. LTD.....Appellant(s) Versus INCOME TAX OFFICER....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 KS JHAVERI and Page 1 of 6

O/TAXAP/358/2006 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 14/11/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of both these appeals, the appellant of Tax Appeal No. 358/2006 has challenged the judgment and order dated 28.6.2005 passed in ITA No. 2982/Ahd/2003 for AY 1997-98, whereas, the appellant of Tax Appeal No. 359/2006 has challenged the judgment and order dated 28.6.2005 passed in ITA No. 2983/Ahd/2003 for AY 1998-99. 2. While admitting these appeals on 4.9.2006, in both these appeals, the following substantial question of law has been framed by this Court: “Whether on facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified inholding that while computing deduction u/s. 80IA of the Income Tax Act, 1961, interest received from trade debtors towards

late

payment

sales consideration is required to be excluded from the profits of the industrial undertaking as the same cannot be said to have been derived from the business of the industrial undertaking ?” Facts of Tax Appeal No. 358/2006: 3. The return of income was filed on 30.11.1997 declaring total income at Rs. NIL. The same was Page 2 of 6

O/TAXAP/358/2006 JUDGMENT processed u/s. 143(1)(a) on 5.3.1998 at the total income of Rs. 14,96,270/-. An order u/s. 154 of the Act has been passed and total income has been revised at Rs. NIL. Later on, verification of case record reveals that there was an escapement of income. Therefore, assessment for AY 1997-98 was reopened. Notice under section 148 of the Act was issued on 5.4.1999. The same was served upon the asessee Company on 9.4.1999. In pursuance to notice issued u/s. 148 of the Act, the assessee company has filed return of income on 7.5.1999 declaring total income at Rs. NIL. Further notice u/s. 143(2) of the Act was issued on 25.1.2002. Details were called for vide notice dated 13.2.2002issued in terms of provisions of section 143(2)/142(1) of the Act. After considering the material on record, the assessment order came to be passed. Facts of Tax Appeal NO. 359/2006 4. The return of income was filed on 30.11.1998 showing total income of Rs.NIL. The return was processed u/s. 143(1)(a) on 15.2.1999 at NIL income. The notice u/s. 143(2) was issued on 17.6.1999 picking up the case in scrutiny. A notice under sec. 142(1) was issued on 31.8.99 calling for specific details. Thereafter, after considering the material on record, the assessment order came to be passed. Against the said order, an appeal before the CIT(A) has been Page 3 of 6

O/TAXAP/358/2006 JUDGMENT preferred which came to be partly allowed except in AY 1998-99 he appeal came to be dismissed. Against which, an appeal before the Income-tax Appellate Tribunal came to be preferred by the assessee which came to be dismissed. Hence, both these appeals before this Court by the assessee. 5. Heard the learned advocates appearing for the parties and considered the submissions. The learned advocate appearing for the appellant has contended that the issue has come up for consideration before this Court in the case of Nirma Industries Ltd. v. Deputy Commissioner of Income-Tax, reported in [2006] 283 ITR 402 (Guj.), which is held in favour of assessee. In the said case, this Court has held as under: “Held, that when one reads the opening portion of section 80-I of the Act it is clear that the words used are “gross total income of an assessee includes any profit and gains derived from an industrial undertaking.” Once this is the position then, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the prescribed percentage is to be allowed. The same item of receipt could not be treated differently, once while computing the gross total income and secondly, at the time of computing deduction under section 80-I. When the assessee enters into a contract for sale of its product it could either stipulate (a) that interest at the specified rate would be charged on the unpaid sale price and Page 4 of 6

O/TAXAP/358/2006 JUDGMENT added to the outstanding till the point of time of realisation, or (b) that in case of delay the payment for sale of products worth Rs. 100 to carry the sale price of Rs. 102 for the first month’s delay and so on. In sum and substance these are only two modes of realising sale consideration, the object being to realise the sale proceeds at the earliest and without delay. The purchaser pays a higher sale price if it delays payment of the sale proceeds. In other words,this is a converse situation to offering a cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. While computing the special deduction under section 80-I, interest received from trade debtors towards late payment of sale consideration is to be included in the

profits

the

industrial undertaking.” 6. The learned advocate appearing for the Revenue is not in a position to dispute the same. In view of the fact that the issue involved in these appeals is governed by the decision of this Court, we are not giving any elaborate reasonings. Hence, the question framed in both these appeals are answered in favour of the assessee and against the Revenue. Both these Tax Appeals are allowed accordingly. (K.S.JHAVERI, J.) Page 5 of 6

O/TAXAP/358/2006 JUDGMENT (K.J.THAKER, J) mandora Page 6 of 6

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