Thursday, 16 July 2015

Whether, to avail deduction u/s 80I, profits of marketing division can be treated as part of overall profits with respect to industrial undertaking eligible for such deduction - YES: HC

THE issue before the Bench is - Whether, to avail deduction u/s 80I, profits of marketing division can be treated as part of overall profits with respect to industrial undertaking eligible for such deduction. YES is the answer.
Facts of the case
The assessee is a company. It had claimed deduction u/s 80-M in respect of gross dividend received during the AY 2002-03. AO held that the claim for deduction u/s 80-M would be available on net basis and not on the basis of gross dividend as claimed. This was by placing reliance on the judgment of SC in Distributors (Baroda) P. Ltd. v/s UOI & ors., 2002-TIOL-849-SC-IT-CB. Consequently, AO disallowed an estimated expenditure of 2% of administrative and other expenses including salaries, PF etc. The AO had not accepted the assessee's contention that as no expenditure was incurred for earning the dividend income in the subject AY, no administrative expenditure could be attributed to it. On appeal, CIT(A) upheld the decision of AO on the basis that assessee had failed to prove the interest bearing funds were not invested in shares for earning dividend income. On further appeal, Tribunal held that the dividend was received from six companies in which an investment aggregated to Rs.5,363.08 crores as on 31 March 2013. This also included the fact that further amount of Rs.680 crores invested during the subject AY. All other investments were made during the earlier years. However, it was recorded by the Tribunal that for the earlier AY no disallowance was made on account of interest or any other expenses while allowing the claim for deduction of dividend received on gross basis u/s 80M. During the subject assessment year and earlier years, the assessee's own funds were available in excess of the investment made. Tribunal had also noticed that most of the borrowings which were taken for import of crude oil and financing projects had been repaid in the earlier years. Thus, the entire deduction as claimed on the gross basis by the assessee was allowed.
Held that,
++ it is undisputable that SC in Distributors (Baroda) Pvt. Ltd. has held that deductions u/s 80-M would not be of the gross amount but of the net amount of dividend received i.e. after deducting the interest paid on monies borrowed. In the facts before the SC, the Distributors (Baroda) Pvt. Ltd. borrowed to invest in shares for earning dividend income. Thus the decision in the case of Distributors (Baroda) P. Ltd. is distinguishable in facts as in those facts there was interest paid on money borrowed to make investment in companies which resulted in income to the assessee therein. This is not so factually in this case. The decision of SC would have no application in the present facts and hence gross dividend and net dividend received is the same. In the present facts, as amply demonstrated in the impugned order, the assessee had its own funds available to make the investment. Therefore, the presumption as set out in Reliance Utilities & Power Ltd. would apply, which presumption the revenue has not disturbed. Moreover, for the earlier assessment year, the revenue has extended the benefit of deduction u/s 80-M as claimed by the assessee without deducting any amount. In view of the above, the impugned order has granted deduction u/s 80-M as claimed. This finding of the Tribunal being essentially a finding of fact which is not shown to be perverse or arbitrary. Therefore, question No.1 as proposed does not require consideration as it does not give rise to a substantial question of law;
++ we find that the impugned order the Tribunal has upheld the respondent's claim for deduction u/s 80I by merely following its own decision in the case of Hindustan Petroleum Corpn. Ltd. reported in 35 TTJ 400, which has been upheld by HC in Income Tax Appeal No.57 of 2002 C.I.T. v/s Hindustan Petroleum Corpn. Ltd., delivered on 24 July 2006. In the above decisions wherein in respect of identical issue, this Court has held that deduction u/s 80I refers to profits and gains from industrial undertaking. It held that manufacturing, processing and marketing are part of the industrial undertaking. In view of the above, no fault can be found with the impugned order of the Tribunal in the absence of the revenue has pointing out that the Hindustan Petroleum Corpn. Ltd.'s case as decided by this Court is not applicable to the present facts. Accordingly, question No.2 does not raises a substantial question of law for our consideration. Accordingly, appeal dismissed.

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