INDIAN EXPRESS NEWSPAPERS (BOMBAY) LTD. vs. THE COMMISSIONER OF INCOM E TAX, MUMBAI

1/12 212(i).ITXA-90-2003.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO.90 OF 2003 (ASSESSMENT YEAR 1987-1988) Indian Express Newspapers (Bombay) Ltd. Express Towers, Nariman Point, Mumbai – 400 021 ) ) ) ….Appellant V/s. The Commissioner of Income Tax, City I, Mumbai ) ) ….Respondent ---- Mr. Sukhsagar Syal a/w. Mr. Amol Joshi and Ms. Tejasvi Ghag i/b. Ms. Poorvi Kamani for appellant. Mr. P.C. Chhotaray for respondent. ---- CORAM : K. R. SHRIRAM & DR. NEELA GOKHALE, JJ.

DATED : 15th MARCH 2024 ORAL JUDGMENT (PER K.R. SHRIRAM, J.) : 1 Appellant is aggrieved by the judgment and order dated 29th May 2002 passed by the Income Tax Appellate Tribunal (ITAT). The appeal came to be admitted on 21st September 2004 when the Court was pleased to frame the following substantial question of law : Whether the facts and circumstances of the case, the Tribunal was right in law in holding that the rental income earned by the Appellant and assessed under the head ‘Income from house property’ will not qualify for deduction u/s. 32AB of the Income Tax Act, 1961? 2 In the assessment year in question, i.e., Assessment Year 1987- 1988, the Assessing Officer allowed deduction under Section 32AB of the Income Tax Act, 1961 (the Act) of Rs.2,85,024/- only, as against appellant’s Gauri Gaekwad 2024:BHC-OS:4695-DB

2/12 212(i).ITXA-90-2003.doc claim for deduction of Rs.76,97,918/-. The Assessing Officer restricted the deduction under Section 32AB of the Act as in his view occupancy charges earned by appellant from letting of space in the building known as Express Towers, Nariman Point, Mumbai is taxed under the head “income from house property” and hence, does not form part of “profits of eligible business or profession” for the purposes of computation of deduction under Section 32AB of the Act. Such income excluded by the Assessing Officer in the computation of deduction under Section 32AB of the Act is Rs.1,27,11,742/- and the eligible deduction is 20% thereof. 3 Aggrieved by the aforesaid order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who upheld the Assessing Officer’s view by an order dated 22nd March 1991. This order of CIT(A) was impugned before the ITAT. The ITAT, by the impugned order dated 29th May 2002, held that since the rental income has been assessed in appellant’s case as “income from house property” and has not been considered as business income, it will not qualify for deduction under Section 32AB of the Act. 4 Mr. Syal submitted as under : (a) eligible business or profession as defined in Section 32AB (2)(i) of the Act would mean all other activity resulting in profits will qualify for deduction under Section 32AB of the Act except the activities Gauri Gaekwad

3/12 212(i).ITXA-90-2003.doc specified therein; (b) the ITAT failed to appreciate that Section 32AB (3) of the Act lays down the mode of computation of the “profits of eligible business or profession” starting from “the amount of profits computed in accordance with the requirements of Parts II and III of the Sixth Schedule to the Companies Act, 1956”, subject to the adjustments enumerated in the said sub-section, viz., sub-section (3) of Section 32AB of the Act; (c) the assessment of rental income under the head “income from house property” as required under Section 22 of the Act does not alter the inherent character of the rental income which is business income; (d) this Court in Commissioner of Income Tax V/s. Diners Club India Ltd.1 had upheld the finding of the ITAT that the profits of the business computed under the Companies Act took into account the dividend income and since the dividend income was part of the business income of the assessee, the assessee was entitled to include such income into profits from eligible business. In the same manner, in the case of appellant, the accounts show the rental income as part of the business income and following the decision of this Court in Diners Club India Ltd. (Supra), appellant is entitled to deduction under Section 32AB of the Act on the rental income; 1 (2001) 248 ITR 679 Gauri Gaekwad

4/12 212(i).ITXA-90-2003.doc (e) the Kerala High Court in Commissioner of Income Tax V/s. Apollo Tyres Ltd.2 affirmed by the Hon’ble Apex Court in Apollo Tyres Ltd. V/s. Commissioner of Income Tax3 supports appellant’s case. In the light of the observations of the Hon’ble Apex Court, the letting of space in the building owned by appellant is not one of the businesses excluded under sub clauses (a) and (b) of Section 32AB (2)(i) of the Act and, therefore, there is no doubt that the business of the assessee of letting of space is an “eligible business”. The fact that the income is assessed under a different head of income “income from house property” would not deprive the assessee of the benefit of Section 32AB of the Act. 5 Mr. Chhotaray opposed and basically reiterated the findings of the ITAT. Mr. Chhotaray submitted that reading of Section 32AB of the Act makes it clear that it cannot include income computed under the heads computation of total income from house property, capital gains and other sources. This is because Section 32AB of the Act appears under Chapter IV of the Act entitled “computation of total income” and more specifically under Part D of the same Chapter entitled “profits and gains of business or profession”. The sub headings given to the various parts of Chapter IV indicate the different heads of income like salaries, income from house property, profits and gains of business or profession, capital gains etc. These 2 (1999) 237 ITR 706 3 (2002) 255 ITR 273 Gauri Gaekwad

5/12 212(i).ITXA-90-2003.doc sub headings clearly indicate that the respective Sections occurring in the parts of Chapter IV apply to the respective heads of income under which the income is to be computed. Therefore, it is clear that the computation of business income has to be done strictly in accordance with the provisions of Section 28 to Section 44D of the Act. Since the income from house property, capital gains and other sources are governed by Sections occurring in other parts, the deduction under Section 32AB of the Act cannot be extended to the other parts unless it is specifically provided for in the Act. Therefore, it is clear that the words “profits of eligible business” have to be interpreted to mean only profits of the assessee’s income from business as defined in clause (i) of Section 32AB (2) of the Act. 6 Section 32AB (1), (2) and (3) of the Act read as under : Investment deposit account. 32AB. (1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head" Profits and gains of business or profession", has, out of such income,— (a) deposited any amount in an account (hereafter in this section referred to as deposit account) maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a scheme (hereafter in this section referred to as the scheme) Gauri Gaekwad

6/12 212(i).ITXA-90-2003.doc to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction [(such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72)] of— (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to twenty per cent of the profits of [eligible] business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less: [Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or as the case may be, any member of such firm, association of persons or body of individuals.] (2) For the purposes of this section,— [(i) "eligible business or profession" shall mean business or profession, other than— (a) the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule carried on by an industrial undertaking, which is not a small-scale industrial undertaking as defined in section 80HHA; (b) the business of leasing or hiring of machinery or plant to an industrial undertaking, other than a small-scale industrial undertaking as defined in section 80HHA, engaged in the business of construction, manufacture or production of any article or thing specified in the list in the Eleventh Schedule;] [(ii)" new ship" or" new aircraft" includes a ship or aircraft which before the date of acquisition by the assessee was used by any other person, if it was not at any time previous to the date of such acquisition owned Gauri Gaekwad

7/12 212(i).ITXA-90-2003.doc by any person resident in India; (iii)" new machinery or plant" includes machinery or plant which before its installation by the assessee was used outside India by any other person, if the following conditions are fulfilled, namely:— (a) such machinery or plant was not, at any time previous to the date of such installation by the assessee, used in India; (b) such machinery or plant is imported into India from any country outside India; and (c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee; (iv) "Tea Board" means the Tea Board established under section 4 of the Tea Act, 1953 (29 of 1953).] (3) [The profits of eligible business or profession of an assessee for the purpose of sub-section (1) shall,— (a) in a case where separate accounts in respect of such eligible business or profession are maintained,] be an amount arrived at after deducting an amount equal to the depreciation computed in accordance with the provisions of sub-section (1) of section 32 from the amounts of profits computed in accordance with the requirements of Parts II and III of the [Sixth Schedule] to the Companies Act, 1956 (1 of 1956) [as increased by the aggregate of— (i) the amount of depreciation; (ii) the amount of income-tax paid or payable, and provision therefor; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964); (iv) the amounts carried to any reserves, by whatever name called; Gauri Gaekwad

8/12 212(i).ITXA-90-2003.doc (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; (vi) the amount by way of provision for losses of subsidiary companies; and (vii) the amount or amounts of dividends paid or proposed, if any debited to the profit and loss account; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account; [and]] [(b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-section (1) of section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipt of the business or profession carried on by the assessee.] 7 The fact that appellant is eligible for deduction under Section 32AB of the Act is not in dispute. The narrow point to be decided is whether appellant is entitled to deduction on the entire income which would include income from house property or it should be restricted only to the income chargeable to tax under the head “profits and gains of business or profession”. 8 From the language of Section 32AB of the Act it is clear that to become eligible for deduction under Section 32AB of the Act, the assessee should first have income chargeable to tax under the head “profits and gains of business or profession”. If such income does not form part of the Gauri Gaekwad

9/12 212(i).ITXA-90-2003.doc total income, the assessee will not be eligible. It is also clear that out of such income, i.e., income out of profits and gains of business or profession, the assessee must have (a) deposited any amount in an account maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a scheme to be framed etc. If these conditions are met, then the assessee shall be allowed a deduction, such deduction being allowed before the loss, if any, brought forward from earlier years is set off under Section 72 of the Act (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to 20% of the profits of eligible business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less. 9 Therefore, though the source of the amount for deposit or for the purchase of the new machinery should come from income chargeable to tax under the head “profits and gains of business”, the definition of "eligible business or profession" is rather wide. It is clear from the definition that except those business specified in clauses (a) and (b) of sub-section (2) of Gauri Gaekwad

10/12 212(i).ITXA-90-2003.doc Section 32AB of the Act, all other business or profession have to be construed as eligible business. Put differently, an eligible business need not necessarily be an industrial undertaking engaged in the manufacture or production of an article. One of the components to be considered for deduction under sub-section (1)(ii) of Section 32AB of the Act is the profit of eligible business to the extent of 20% of the same. That profit has to be computed in the manner laid down in sub-section (3) of Section 32AB of the Act. Therefore, in our view, whatever income is earned by the assessee either from its activity of manufacture or production for sale or printing business or from other activities such as earning rental income from house property, as long as they constituted the business all will fall under the category of “eligible business”. It is not in dispute that the accounts of appellant show the rental income as part of the business income. The reason is, by definition, eligible business, is not confined to manufacture or production. Further, in the case of appellant, the accounts have been prepared in accordance with Part II and Part III of the Sixth Schedule to the Companies Act, 1956 as is the mandate in sub-section (3) of Section 32AB of the Act. From the published profit and loss account prepared in accordance with Part II and Part III of Sixth Schedule to the Companies Act, 1956, Mr. Syal says, the rental income from house property were considered as business income before ascertainment of the net profit of the undertaking of appellant. From Gauri Gaekwad

11/12 212(i).ITXA-90-2003.doc such profit, the adjustments envisaged in sub-section (3) of Section 32AB of the Act are to be given effect to. Moreover, the activity of income from house property has to be construed as forming part of the same business as there is one account for the printing business and for income from house property and the business is conducted under a common management. There is one profit and loss account and one balance sheet. It is the perception of the activities from the point of view of businessman that is material. It is such perception that is recognised in Part II and Part III of the Sixth Schedule to the Companies Act, 1956. In Section 32AB(3) or Section 32AB (1)(ii) of the Act, the expression “chargeable to profits and gains of business” is conspicuous by its absence. Hence, the dichotomy as between the income from printing and rental income from house property is not warranted in terms of Section 32AB(3) of the Act. 10 In our view, all eligible business or profession shall include every income except that which is excluded specifically in the definition of eligible business or profession. We find support for this view in Apollo Tyres Ltd. (Supra) of Kerala High Court and Hon’ble Apex Court. It is not the case of the Revenue or the findings of the ITAT that appellant has in its account not shown rental income as part of the business income. Infact as per the assessment order, these charges have been considered as part of business income but the Assessing Officer has excluded it for the purpose of profits Gauri Gaekwad

12/12 212(i).ITXA-90-2003.doc to arrive at the eligible business income for the purpose of Section 32AB of the Act. Therefore, so long as the rental income is part of the business income, it will be included in the term of eligible business because the rental income is not excluded in the definition of eligible business. The question of law, as framed, is answered in negative. The rental income earned by appellant and assessed under the head “Income from house property” will qualify for deduction under Section 32AB of the Act. 11 Appeal disposed accordingly. (DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.) Gauri Gaekwad Signed by: Gauri A. Gaekwad Designation: PS To Honourable Judge Date: 19/03/2024 17:37:40