Commissioner Of Income Tax Iv vs M/S Interarch Building Product
2014 Latest Caselaw 6152 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI
                               Date of decision: 25th November, 2014
+                   ITA No. 54/2003

      COMMISSIONER OF INCOME TAX IV               ..... Appellant
              Through     Mr. Kamal Sawhney, Sr. Standing
              Counsel with Mr. Sanjay Kumar, Jr. Standing
              Counsel.

                          versus

      M/S INTERARCH BUILDING PRODUCT           ..... Respondent
               Through    Mr. M.P. Rastogi and Mr. K.N. Ahuja,
               Advocates.

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J. (ORAL)

This appeal by the Revenue under Section 260A of the Income

Tax Act, 1961 (Act, for short) pertains to assessment year 1994-95 and

was admitted for hearing by order dated 10th May, 2005, on the

following substantial question of law:-

"Whether the Income Tax Appellate Tribunal was justified in law in holding that service charges of Rs.2,20,500/- to be recovered from M/s Interach are to be included in the profits of industrial undertaking for computing deduction u/s 80-I of the Act (wrongly mentioned by the ITAT as u/s 80HHC)?"

2. It is not disputed that the respondent-assessee is entitled to claim

deduction under Section 80-I of the Act. The respondent-assessee had

shared a common office with M/s. Interarch. Accordingly, they shared

the service charges in respect of the common office. An amount of

Rs.2,20,500/- was received from M/s. Interarch and it is not the case of

the Revenue that the said amount was not a part of the service charge

payable by M/s. Interarch for using the common office. However, the

Assessing Officer while computing deduction under Section 80-I of the

Act excluded the said amount on the ground that it was not a part of

industrial activities and, therefore, should be excluded. The aforesaid

reasoning was affirmed in the first appellate order passed by the

Commissioner of Income Tax (Appeals). However, in the second

appeal before the Income Tax Appellate Tribunal, the plea of the

assessee was accepted.

3. The Tribunal has rightly and correctly recorded that the

Assessing Officer was bound to determine the profits of the industrial

undertaking and while computing the profit, the receipts of the

industrial undertaking and the expenditure incurred for carrying out the

business of the industrial undertaking have to be taken into

consideration. Thus, Rs.2,20,500/- would not form part of the income

earned i.e. income derived by the industrial undertaking and equally

Rs.2,20,500/-, which was the service charge or the expenditure

incurred by M/s. Interarch, would not be treated as an expenditure

incurred by the assessee. The expenditure incurred by M/s. Interarch

was relating to their business. Only the expenditure relating to the

industrial undertaking would be deducted. The expenditure incurred

by the assessee would not, therefore, include the expenditure incurred

for the business of M/s. Interarch and was reimbursed to the assessee.

The fact that the expenditure related to and was payable by M/s.

Interarch is not under challenge. It is not the case of the revenue that

the amount paid, exceeded or was more than the expenditure actually

incurred by M/s. Interarch and had the effect of reducing the

expenditure incurred by the respondent-assessee and thereby increased

the profits eligible for deduction under Section 80-I of the Act.

4. In view of the aforesaid position, we do not find any merit in the

present appeal and the same is dismissed. The substantial question of

law is answered in favour of the respondent-assessee and against the

appellant-Revenue. No costs.

SANJIV KHANNA, J.

V. KAMESWAR RAO, J.

NOVEMBER 25, 2014 NA