Reliance Industries Ltd. v. Addl. CIT

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The Tax Publishers2013 TaxPub(DT) 0463 (Mum-Trib) : (2014) 159 TTJ 0349 : (2012) 079 DTR 0315 INCOME TAX ACT, 1961 --Business deduction under section 36(1)(iii)--Interest on borrowed capital Interest free loans/advances to subsidiary companies--Assessing officer stated that assessee has advanced interest free loans to subsidiary companies. Assessing officer stated that assessee filed details and stated that the assessee had given loans and advances of Rs. 2,388.98 crores to its subsidiaries as on 31-3-2002 out of out of its own funds and internal accrue's except to the extent of Rs. 9.89 crores. The amount of interest on the advances of 9.89 crores given out of other than own funds worked out to Rs. 11,19,382. The assessing officer disallowed entire interest under section 36(1)(ii). Held: ,/i>Assessee's own funds were far in excess of the interest free loans and advances given by assessee to its subsidiary companies then presumption would be arised but investment would be out of interest free fund generated or available with the company. Income Tax Act, 1961 Section 36(1)(iii) INCOME TAX ACT, 1961 --Business expenditure--Disallowance under section 14AExpenditure against exempt income--For earning exempt income assessing officer estimated 62.34 crores being proportionate interest on borrowed fund and disallowed under section 14A. Held: Assessee's own funds were far in excess than the investments made by assessee giving exempt income, disallowance made by the assessing officer of the interest was not justified. Income Tax Act, 1961 Section 14A INCOME TAX ACT, 1961 --Deduction under section 80HHCComputation Adjustment of deduction allowable under section 80-IA/80-IB--Assessee had 12 units and had claimed deduction under section 80-IA ad 80-IB with reference to all 12 units. However, there were only 3 exporting units against which assessee had claimed deduction under section 80HHC. Assessing officer while working out claim of deduction under section 80HHC reduced the profit allowed as deduction under sections 80-IA and 80-IB with reference to all 12 units. Held: Deduction under section 80HHC is to be worked out as provided in section 80HHC and, thereafter, while giving deduction such profit has to be reduced by proportionate profit allowed as deduction under section 80-IA/80-IB with reference to export turnover to total turnover with the condition that deduction would be allowed subject to extent the eligible profit of the undertaking. Deduction under section 80HHC of the Act is computed in proportion of export turnover to total turnover. Further sub-section (9) of section 80-IA provides that when an amount of profits and gains of an undertaking is claimed and allowed as deduction under section 80-IA of the Act for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this chapter under the head 'C-Deduction in respect of certain incomes' and subject to the condition that the total deduction should not exceed profits and gains of such eligible business of undertaking or enterprise, as the case may be. This provision has been inserted with a view to avoid double benefit under the Act on the same profit of an undertaking or enterprise. Hence, section 80-IA(9) relates to deduction and not to computation of deduction. It does not refer to method of computing deduction under other provisions under heading C of Chapter VI-A. When the deduction under section 80HHC is to be considered, it is to be allowed in proportion to export turnover to the total turnover of an undertaking and accordingly that proportion of the deduction allowed under section 80HHC is to be considered and reduced while allowing deduction under section 80-IA of those three exporting units subject to the condition that total deduction will not exceed the eligible profits of the undertaking. Hence, entire deduction allowed under section 80-IA/80-IB should not be reduced while computing deduction under section 80HHC. On the other hand, the claim of export profits of these three units under section 80HHC should be reduced while allowing deduction under section 80-IA of the Act in proportion of export turnover to total turnover. [Para 8.15] Income Tax Act, 1961 Section 80HHC Income Tax Act, 1961 Section 80-IA/80-IB INCOME TAX ACT, 1961 --Capital gainsComputation Sales of shares with non-compete agreement prior to assessment year 2003-04--Assessee sold substantial equity shares of L&T to GIL and entered into as agreement dt. 18-11-2001 which tonained inter alia restrictive covenant imposing restriction upon assessee not to acquire any equity shares of L&T or another instrument that provides voting rights of L&T to assessee or to any person on its behalf for a period of fire years. in the return of income assessee excluded 25 per cent of sale consideration as pertaining to restrictive covenant in the nature of capital receipt assessing officer observed that clause 20.8 of SEBI regulation does not in a my manner let out that 25 per cent of the sale consideration would be treated as payment towards non-compete general as capital receipt under Income Tax Act. Held: Not rightly so. Prior to 2003-04 in view of clause 20(8) of SEBI (substantial acquisition of shares and takeovers) Regulation, 1997 as assessee was holding 7.7 per cent shareholding 25 per cent of sale consideration was subject to non-compete agreement not liable to tax. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0463 (Mum-Trib) : (2014) 159 TTJ 0349 : (2012) 079 DTR 0315

INCOME TAX ACT, 1961

--Business deduction under section 36(1)(iii)--Interest on borrowed capital Interest free loans/advances to subsidiary companies--Assessing officer stated that assessee has advanced interest free loans to subsidiary companies. Assessing officer stated that assessee filed details and stated that the assessee had given loans and advances of Rs. 2,388.98 crores to its subsidiaries as on 31-3-2002 out of out of its own funds and internal accrue's except to the extent of Rs. 9.89 crores. The amount of interest on the advances of 9.89 crores given out of other than own funds worked out to Rs. 11,19,382. The assessing officer disallowed entire interest under section 36(1)(ii). Held: ,/i>Assessee's own funds were far in excess of the interest free loans and advances given by assessee to its subsidiary companies then presumption would be arised but investment would be out of interest free fund generated or available with the company.

Income Tax Act, 1961 Section 36(1)(iii)

INCOME TAX ACT, 1961

--Business expenditure--Disallowance under section 14AExpenditure against exempt income--For earning exempt income assessing officer estimated 62.34 crores being proportionate interest on borrowed fund and disallowed under section 14A. Held: Assessee's own funds were far in excess than the investments made by assessee giving exempt income, disallowance made by the assessing officer of the interest was not justified.

Income Tax Act, 1961 Section 14A

INCOME TAX ACT, 1961

--Deduction under section 80HHCComputation Adjustment of deduction allowable under section 80-IA/80-IB--Assessee had 12 units and had claimed deduction under section 80-IA ad 80-IB with reference to all 12 units. However, there were only 3 exporting units against which assessee had claimed deduction under section 80HHC. Assessing officer while working out claim of deduction under section 80HHC reduced the profit allowed as deduction under sections 80-IA and 80-IB with reference to all 12 units. Held: Deduction under section 80HHC is to be worked out as provided in section 80HHC and, thereafter, while giving deduction such profit has to be reduced by proportionate profit allowed as deduction under section 80-IA/80-IB with reference to export turnover to total turnover with the condition that deduction would be allowed subject to extent the eligible profit of the undertaking.

Deduction under section 80HHC of the Act is computed in proportion of export turnover to total turnover. Further sub-section (9) of section 80-IA provides that when an amount of profits and gains of an undertaking is claimed and allowed as deduction under section 80-IA of the Act for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this chapter under the head 'C-Deduction in respect of certain incomes' and subject to the condition that the total deduction should not exceed profits and gains of such eligible business of undertaking or enterprise, as the case may be. This provision has been inserted with a view to avoid double benefit under the Act on the same profit of an undertaking or enterprise. Hence, section 80-IA(9) relates to deduction and not to computation of deduction. It does not refer to method of computing deduction under other provisions under heading C of Chapter VI-A. When the deduction under section 80HHC is to be considered, it is to be allowed in proportion to export turnover to the total turnover of an undertaking and accordingly that proportion of the deduction allowed under section 80HHC is to be considered and reduced while allowing deduction under section 80-IA of those three exporting units subject to the condition that total deduction will not exceed the eligible profits of the undertaking. Hence, entire deduction allowed under section 80-IA/80-IB should not be reduced while computing deduction under section 80HHC. On the other hand, the claim of export profits of these three units under section 80HHC should be reduced while allowing deduction under section 80-IA of the Act in proportion of export turnover to total turnover. [Para 8.15]

Income Tax Act, 1961 Section 80HHC

Income Tax Act, 1961 Section 80-IA/80-IB

INCOME TAX ACT, 1961

--Capital gainsComputation Sales of shares with non-compete agreement prior to assessment year 2003-04--Assessee sold substantial equity shares of L&T to GIL and entered into as agreement dt. 18-11-2001 which tonained inter alia restrictive covenant imposing restriction upon assessee not to acquire any equity shares of L&T or another instrument that provides voting rights of L&T to assessee or to any person on its behalf for a period of fire years. in the return of income assessee excluded 25 per cent of sale consideration as pertaining to restrictive covenant in the nature of capital receipt assessing officer observed that clause 20.8 of SEBI regulation does not in a my manner let out that 25 per cent of the sale consideration would be treated as payment towards non-compete general as capital receipt under Income Tax Act. Held: Not rightly so. Prior to 2003-04 in view of clause 20(8) of SEBI (substantial acquisition of shares and takeovers) Regulation, 1997 as assessee was holding 7.7 per cent shareholding 25 per cent of sale consideration was subject to non-compete agreement not liable to tax.