Section 143(3B) of the Income Tax Act
The decision most relied on for Section 143(3B) is Textile Machinery Corporation Ltd. v. CIT (107 ITR 195), cited in 165 of the 442 judgments on BharatTax that turn on this section.
Leading authorities on Section 143(3B)
A new industrial undertaking is not considered a reconstruction of an existing business for tax deduction purposes if it is a separate, independent production unit manufacturing commercially tangible products that can operate without losing its identity in the old business. The transfer and substantial use of assets and manpower from an old business to a new one may indicate reconstruction.
Incentive provisions in the Income-tax Act, particularly those granting deductions for new industrial undertakings, must be construed liberally to achieve their legislative purpose. This principle guides the interpretation of conditions such as what constitutes a 'new undertaking' versus a 'splitting up or reconstruction' of an existing business for claiming deductions.
The Department cannot take a different view in a subsequent assessment year if the facts and circumstances remain the same and the finding in an earlier year's assessment was not challenged. This establishes the rule of consistency in income tax proceedings.
A right to purchase property under an agreement to sell is a capital asset as defined under Section 2(14) of the Income-tax Act. The relinquishment or extinguishment of such a right constitutes a transfer of a capital asset, the consideration for which is taxable as capital gains.
Expenditure incurred for a purpose prohibited by law or in violation of another statute is not deductible as business expenditure under Section 37(1) as it is against public policy. The Explanation to Section 37 reinforces that such expenditure is deemed not for business.
An assessment order is erroneous and prejudicial to the revenue, justifying revision under Section 263, if the Assessing Officer fails to make necessary inquiries or examine materials provided by the assessee, leading to a routine assessment.
Payment of commission to doctors for referring patients to diagnostic centers or providing gifts, freebies, or hospitality to medical practitioners by pharmaceutical companies is against public policy and cannot be allowed as a business expenditure under Section 37(1). Demanding such benefits is unethical on the part of doctors, and paying them is equally unethical on the part of companies.
Interest paid on borrowed funds is not allowable as a deduction under Section 36(1)(iii) of the Income-tax Act to the extent such funds are diverted to provide interest-free advances for non-business purposes, such as to sister concerns or promoter companies.
When an assessee has mixed funds from both own sources and borrowings in a cash credit account, the debit balance is presumed to have been met from the company's own funds. This principle is applied to assess the allowability of interest deduction under Section 36(1)(iii) for capital borrowed for business purposes.
Business is considered set up when initial and essential activities for its establishment, such as obtaining necessary licenses, leases, and beginning raw material extraction, commence, even before the main manufacturing plant is fully installed or production has started.
Judgments on Section 143(3B)
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