M/S. PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. vs. THE DY CIT CIR 7(1),

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ITA 1500/MUM/2005Status: DisposedITAT Mumbai27 November 2015AY 2001-20025 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The tribunal held that interest income is not derived from industrial activity and thus not eligible for deduction under Section 80IB, following the Supreme Court's decision in Liberty India. Foreign exchange gains and income from scrap sales were held to be eligible for inclusion.

What were the facts?

The assessee sought deduction under Section 80IB of the Income Tax Act, 1961, and the dispute centered on whether certain 'other income' items should be included in the profits of eligible units. The tribunal considered various income sources like interest, foreign exchange gains, and scrap sales.

What were the issues?

The primary issue was whether various 'other income' items should be included in the profits of eligible industrial undertakings for the purpose of calculating deduction under Section 80IB of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 80IB

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Income Tax Appellate Tribunal, “ F” BENCH, MUMBAI

Before: S/SHRI D. KARUNAKARA RAO & SANJAY GARG

Hearing: 19.8.2015Pronounced: 27.11.2015

Heard together (2 matters)

I.T.A. No.8999/Mum/2004
ITA No.1500/Mum/2005

Read from the judgment's own cause title. This page is filed under one of them.

आदेश / O R D E R

PER SANJAY GARG, JUDICIAL MEMBER: With this common order, we will dispose of the above titled two appeals preferred by the assessee in relation to the limited issue as to whether certain items of other income are to be included or excluded from the profits of eligible units for the purpose of computation of deduction u/s 80IB of the Income Tax Act, 1961 (the Act.)

2.

The is pertaining to the assessment year 2001-02. The other issues raised by the assessee in this appeal have already been decided by the Tribunal vide order dated 25.1.2012. However, the said order was recalled by the Tribunal for adjudication on this above stated limited ground as the said ground had remained in advertently un-adjudicated. So far as the appeal for the assessment year 2000-01 is concerned, the matter has been restored by the Hon’ble Bombay High Court vide order dated 30.11.2013 passed in Income Tax Appeal No. 1663 of 2011 for adjudication on the above stated identical ground. Hence, we proceed to decide this limited issue relating to eligibility of other income, whether is required to be excluded or included while arriving at a profit and gains derived from the eligible undertaking for the purposes of deduction u/s 80IB of the Act. It is pertinent to mention here that the Hon’ble High Court has restored this issue with a direction that the same be decided in the light of decision of jurisdictional High Court in the case of Associated Capsules P Limited V/s Dy.CIT (2011)332 ITR 42(Bom) and the decision of Hon’ble Apex Court in the case of Liberty India V/s CIT reported in 317 ITR 218 (SC).

3.

The ld.AR of the assessee, at the outset, has invited our attention to a chart submitted by him, wherein the details of the nature of items of other income have been mentioned which we will deal hereby one by one. The first four items are related to the following interest income: a) Interest income and other; b) Interest on bank deposits: c) Interest on ICD; and d) Interest income on EEFC.

4.

The ld.AR, at the time of hearing has very fairly admitted that the issue relating to interest income is squarely covered against the assessee by the decision of Hon’ble Supreme Court rendered in the case of Liberty India (supra). Since the interest income is not derived from the industrial activity of the assessee, the same is not allowable for the purpose of claiming deduction u/s 80IB.

5.

The next item is relating to foreign exchange gain. Both the Representatives of the parties fairly stated that the issue is squarely covered in favour of the assessee by the decision of Hon’ble Jurisdictional High Court in the case of M/s Syntel Limited (Income Tax Appeal No.1974, 1976 and 1978 of 2009) decided vide order dated 15.12.2009. Following the said decision, the Hon’’ble High Court further in the case of CIT V/s Rachna Udhyog (2010) 230 CTR 72 (Bom) has held that the exchange rate difference due to exchange rate fluctuation is directly related to the sale transaction involving the export of goods of the industrial undertaking. Since the issue is directly covered by the decision of jurisdictional High Court, this issue is accordingly, decided in favour of the assessee.

6.

The next item is other operating income (scrap and other miscellaneous items). The ld. AR has submitted that this income is in the nature of sale of scrap arising from the manufacturing activities, therefore, the said income is directly related to the eligible undertaking and therefore is to be included for the purpose of deduction u/s 80IB of the Act.

7.

We agree with the contention of the ld. AR that the scrap is waste product out of the manufacturing activity and the income derived from the same is relating to the industrial activity of the assessee. This issue is accordingly decided in favour of the assessee.

8.

With regard to the inclusion of miscellaneous items of income, the details have not been filed, therefore, the ld. AR submitted that he is not pressing this issue for want of specific details. Accordingly, we dismiss this issue as not pressed.

9.

The other items pertain to Earnest Money from Scrap Vendors, other unallocable operating income brandised/allocated to plant and Write Back of old provisions and stale cheques.

10.

Both the Representative of the parties have submitted that these issues are required to be re-examined by the AO and hence we restore these issues to the file of the AO for fresh decision in accordance with law in the light.

11.

In view of above discussions, the allowability of the items pertained to other income is decided accordingly.

12.

In the result, both the appeals of the assessee are treated as partly allowed for statistical purposes. Order pronounced in the open court on 27th Nov, 2015 आदेश क� घोषणा खुले �यायालय म� �दनांकः 27th Nov. 2015 को क� गई । Sd/- Sd/- (D. KARUNAKARA RAO/डी. क�णाकर राव) (SANJAY GARG/संजय गग�) Judicial Member/ �या�यक सद�य Accountant Member/ लेखा सद�य मुंबई Mumbai; �दनांक Dated: 27th Nov,2015 व.�न.स./ SRL , Sr. PS

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