M/S Triveni Sheets Glass Ltd. vs Chief Commissioner Of Income Tax, ...
2011 Latest Caselaw 1128 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

					A.F.R.
 
					Judgment reserved on 05.4.2011
 
Judgment delivered on 18.4.2011
 

 
      INCOME TAX APPEAL NO. 6 OF 2002
 
                           M/s Triveni Sheets Glass Ltd.
 
			               vs.
 
	  Chief Commissioner of Income Tax, U.P. Lucknow
 

 
Hon'ble Sunil Ambwani, J.

Hon'ble Kashi Nath Pandey, J.

1. We have heard Shri N.C. Gupta, learned counsel for the appellant. Shri A.N. Mahajan appears for the department.

2. This Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) arises out of the order passed by the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad dated 28.8.2001 in I.T.A. No. 380 (Alld)/1993, for the assessment year 1990-91.

3. The appellant-company is a public limited company engaged in the manufacture and sale of hot glass. In the assessment year 1990-91, the company earned income by way of business and also by way of making investment in the securities. It mostly invested the money in the units of Unit Trust of India. The dividends received from the UTI were shown in the profit and loss accounts prepared as per Part-II and Part-III of Schedule-VI of the Companies Act, 1956, as income from other sources.

4. The assessing authority observed that the assessee has wrongly claimed the Octroi & Entry tax of Rs. 12, 89, 914/- to be the business income, but while calculating the deductions under Section 32-AB of the Act with reference to profit from business, the assessing authority excluded the same amount from the total business income. In Appeal the CIT (A), Allahabad directed the assessing authority to include the amount of Rs.12,89,914/- in the total business profits for the purpose of calculating deductions under Section 32-AB in respect of investment deposit account.

5. The Tribunal was of the view, that the income from UTI is not an income from business; it is income from other sources. The assessee is not carrying on any business of purchase and sale of units. The amount was invested in the units for the purposes of earning dividend income. The argument, that Para-14 of the Memorandum of Association of the company, permits the company to make investment, which is ancillary to eligible business, was not accepted.

6. The Tribunal considered the judgment of the Kerela High Court in CIT vs. Apollo Tyres Ltd., 1998 Taxman-Tax Reports (Vol.101) 167 (Kerala) and distinguished it on the ground that the Apollo Tyres was dealing in shares and carrying on business of shares. In this case it was found that the assessee company had invested the amount in the units for the purposes of earning dividend. The Tribunal also found that it was not clear as to how the expenditure of Rs.10,83,079/- could be considered for the purposes of allowing deductions under Section 32AB of the Act. Neither the AO, nor CIT (A) had recorded the findings that this expenditure was debited to profit and loss account; the same could not be deducted from the profit of the eligible business. Since the facts were not clear, the Tribunal restored the matter to the file of CIT (A), for reconsideration in respect of expenditure of Rs. 10, 83, 079/-, and profit of the business of Rs. 5, 68, 19, 640/-, after deducting the interest paid to the West Bengal Government.

7. The appellant has raised following substantial questions of law for consideration by this Court:-

"(I) Whether on the facts and in the circumstances of the case, the Income Tax Tribunal, Allahabad was right in holding that the profits of eligible business under sub section (1) (ii) of Section 32AB read with sub-section 3 (a) thereof the Income Tax Act, 1961 would not include any income from interest or dividend which forms part of business profits as computed in accordance with the requirement of parts II and III of the Sixth Schedule to the Companies Act, 1956?

(II) Whether on the facts and in the circumstances of the case the Income Tax Tribunal, Allahabad was right in holding that only the business income of an eligible business and not the total income of the assessee qualifies for deduction U/s 32AB of the Income Tax Act, 1962?

(III) Whether on the facts and in the circumstances of the case the Income Tax Tribunal, Allahabad was right in holding that the income of the assessee from dividends on units of Unit Trust of India does not from part of Profits of Eligible Business and so does not qualify while considering the deduction U/s 32AB?."

8. Shri N.C. Gupta submits that in Apollo Tyres Ltd. vs. Commissioner of Income Tax 2002 ITR (255) 273, the Supreme Court considered the same question as to whether the income from the dividend of UTI can be treated as business profits and qualifies for special deduction in computation as eligible business. The Supreme Court also considered the question, whether loss in the speculation business of UTI is a business loss, in case the UTI is deemed to be a company; and whether in such case the fiction to make the UTI a deemed company and distribution of income as deemed dividend for the purposes of the Income Tax Act, Section 32 (3) of the Unit Trust of India Act, 1963 will be attracted. The supreme Court held as follows:-

"The dispute in the present case is in regard to the question whether the assessee's investment in the UTI is business, and if so, is it a business which qualifies to be an ''eligible business' under section 32AB? In regard to the first aspect, we must note that the Tribunal as a question of fact based on material on record has come to the conclusion that the investment in the UTI by the assessee-company is in the course of its business and its businesses of manufacture and sale of tyres and sale and purchase of units of the UTI are common in nature and both the businesses are intertwined and interlaced. This finding is accepted by the High Court also. We also find that this business of the assessee-company of buying and selling of units is a business as contemplated under section 32AB. The question then is: is it an eligible business under the said section? The term ''eligible business' is defined under sub-section (2) of section 32AB. As per that definition, all businesses of an assessee-company will be an eligible business unless it falls under the type of business enumerated in sub-clauses (a) and (b) of section 32AB(2). It is nobody's case that this business of the assessee-company is one of those businesses which falls under business enumerated in clauses (a) and (b) of sub-section (2) of section 32AB. Therefore, there is no doubt that the business of the assessee-company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under section 32AB so long as it is held that the investment in the units of the UTI by the assessee-company is in the course of its ''eligible business'. Therefore, in our opinion, the dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of ''eligible business' under section 32AB."

9. Shri A.N. Mahajan appearing for the department has relied upon judgment of Calcutta High Court in Commissioner of Income Tax v. Warren Tea Ltd. (2001) 251 ITR 382 (Cal), in which, relying upon CIT v. Dinjoye Tea Estate (P) Ltd. (1997) 224 ITR 263 (Gauhati), it was held that the benefit of Section 32-AB, of the Act, cannot be extended to the dividend income. The assessee in that case was the owner of the tea garden. It derived income from selling tea leaves. The investment in the shares was not found to be the business of the assessee. The Calcutta High Court held that the deduction under Section 32AB of the Act is allowable only on the basis of profit from "business or profession" and not from the income from other sources. When investment in shares is neither a business nor a profession of the assessee, the dividend income received from those shares on account of shares held by the assess cannot be treated as income from the "business or profession".

10. In this case we have to find out if the questions raised before us, is covered by the judgment of Supreme Court in Apollo Tyres Ltd's case. In the present case in the 'Memorandum of Association' of the assessee provides in Clause-(B).14 as follows:-

"(B).14. To invest and deal with the moneys of the Company not immediately required upon such securities or investments and in such manner as may from time to time be determined."

11. The Supreme Court in Apollo Tyres Ltd. upheld the decision of the Kerela High Court in which a similar clause was incorporated in the Memorandum of Association of the Company, and held that the assessee company in its book of account had shown certain sums of money representing "dividend" from the units of the UTI, and had included the same amount in the computation of its profit as income from "eligible business". It had also claimed that out of such income from "eligible business" it had purchased certain new machineries for its factory because of which it claimed a deduction of 20 per cent of the said income as provided in section 32AB of the Income Tax Act. This claim was allowed by the Tribunal and confirmed by the High Court.

12. In reply to the argument of the revenue authority that the income received by the assessee-company from its investment in the UTI has been declared by the company itself as an "income from other sources", the assessee (Apollo Tyres Ltd.) had contended that its income from sale and purchase of units of the UTI, is part of its regular business and that it held these units as stock-in-trade, and has been doing the business of buying and selling the same. The income from business of investment in the units of the UTI and its business of manufacture and sale of tyres was pooled together in a common account of funds which was managed by one common management. It was contended that the business of buying and selling units of the UTI and the manufacture and sale of tyres is so intertwined and interlaced, that the same cannot be separated and treated independently, and therefore, this income from the UTI being part of its business income, the Company was entitled to claim the benefit of Section 32AB of the Act.

12. The Supreme Court in Appolo Tyres Ltd held that under Section 32AB as it stood at the relevant time, if an assessee has a total income including income chargeable to tax under the head "Profits and gains of business or profession" and if the income from such business is derived from an "eligible business" and if the assessee has out of such income utilised any amount during the previous year for the purchase of new plant or machinery then it is entitled to a set off of a sum equal to 20 per cent of the profit of such eligible business as computed in the accounts of the assessee which account has been audited in accordance with sub-section (5) of Section 32AB.

13. In the present case, Clause-(B).14, of the Memorandum of Association, in the incidental or ancillary object to the attainment of the main object, is to invest and deal with the moneys of the Company, not immediately required upon such securities or investments. The business of investment and dealing with the moneys is incidental to the main business. There is no pleading or evidence nor the accounts were produced by the assessee before the Assessing Authority CIT (A), or Tribunal, to show that the income from dividends of units of UTI was utilised in the main business of the company, in manufacturing and sale of glass or for any other purpose. The Income Tax Tribunal recorded a finding that in the case of assessee (in the present case) it was found that the assessee company has invested the amount in the units for the purposes of earning dividend, and not as business of sale and purchase of units. The statements of purchase and sale of UTI units was maintained separately and the company had treated the income as dividend from UTI under the head "other sources", in its profit and loss account, in the annual account of the year ending 31.3.1990. During the year the assessee has shown investment of Rs. 2, 88, 15,100/-, in 19, 80, 000 units of UTI. The purchase and sale of units disclosed by the assessee in its accounts is as follows:-

"Statement of purchase and sale of UTI units

Particulars

A.Y. 1988-89

A.Y.1989-90

A.Y.1990-91

Opening units

5,00,000 units

5,00,000

16,80,000

Purchases

-

23,80,000

Nil

Sales

12,00,000

Nil

14. The facts of this case are different than the facts of the case of Apollo Tyres Ltd. There is no material, nor the statement of accounts shows, that income received by the company as dividend from UTI, was treated and applied as eligible business income. The company itself had treated this income as the income from dividend, under the head "other sources" in its profit and loss account, in the annual account of the year ending 31.3.1990.

15. In the facts of the case, we are of the opinion, that the investment by the assessee in the units of UTI was not the business of the assessee. The dividend income received from those shares was not treated by the assessee as income from business or profession, nor could it be treated as income from business or profession. The income was not applied in the main business of the assessee and thus the Tribunal rightly concluded that the assessee was not entitled to deduction in respect of dividend income under Section 32AB of the Act. All the three questions are decided against the assessee and in favour of the department.

16. The Income Tax Appeal is dismissed.

Dt.18.4.2011

RKP/