CIT v. Galaxy Surfactants Ltd.

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The Tax Publishers2012 TaxPub(DT) 1713 (Bom-HC) : (2012) 047 (I) ITCL 0518 : (2012) 343 ITR 0108 : (2012) 249 CTR 0038 : (2012) 206 TAXMAN 0022 : (2012) 069 DTR 0042 INCOME TAX ACT, 1961 --Business expenditure--AllowabilityRoyalty paid to sister concern--The issue under consideration was whether Tribunal was justified in deleting the addition made by AO towards royalty payment even though he had given a clear finding that the payment of royalty was only a self-serving arrangement to pass on substantial financial benefits to the sister concern of assessee and further no benefit was derived by using the trademark for which the alleged payment of royalty was made. Held: The Tribunal by its order for assessment years 1996-97 to 1998-99 held that assessee had made payment for the use of trademark which was genuine and in accordance with business exigencies and same was held to be allowable as business expenditure. In that view of the matter, since the Tribunal had followed its own decision for the earlier years which had been accepted by the revenue, royalty payment was held as allowable and no substantial question of law would arise. Income Tax Act, 1961 Section 37(1) INCOME TAX ACT, 1961 --Deduction under section 10B--100 per cent export oriented undertakingsComputation--Assessee had a 100 per cent EOU which was entitled to deduction under section 10B. For the relevant year, assessee had suffered loss in EOU unit on account of current depreciation. While determining taxable income, it reduced loss sustained by EOU against the profits of other units. AO held that deduction under section 10B has to be given in respect of the profits of the undertaking independently and the loss sustained by the eligible unit could not be set-off against the income of the other units. CIT(A) confirmed the order of AO but the same was reversed by the Tribunal. Held: After the substitution of section 10B by the Finance Act, 2000, section 10B was no longer a provision for exemption, but a provision for deduction and the deduction has to be allowed against the total income of assessee. Section 70 provides for a setting off of a loss from one source falling under any head of income (other than capital gains) against income from any other source under the same head and there is no provision in section 10B by which a prohibition has been introduced by the legislature in setting off of a loss which is sustained from one source falling under the head of profits and gains of business against income from any other source under the same head. Therefore, assessee was entitled to set-off of a loss of EOU against the profits of other units. Income Tax Act, 1961 Section 10B Income Tax Act, 1961 Section 70 IN THE BOMBAY HIGH COURT D.Y. CHANDRACHUD & M.S. SANKLECHA, JJ. CIT v. Galaxy Surfactants Ltd. ITA No. 3465 of 2010 7 February, 2012 IT : Loss of 100 per cent Export Oriented Unit (EOU) which is entitled to deduction under section 10B can be set-off against profit of other units under same head Appellant by : Vimal Gupta Respondent by : Percy J. Pardiwala and Atul K. Jasani JUDGMENT *Dr. D.Y. Chandrachud, J.* This appeal by the Revenue under section 260A of the Income Tax Act, 1961, arises out of the decision rendered by the Income Tax Appellate Tribunal on 22-9-2009 in relation to assessment years 2005-06. The following two questions of law have been raised by the Revenue in this appeal : '(A) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition made by the assessing officer towards royalty payment of Rs. 2,06,77,545 even though the assessing officer has given a clear finding that the payment of royalty was only a self serving arrangement to pass on substantial financial benefits to the sister concern of the Assessee Company and further no benefit was derived by using the trade mark for which the alleged payment of royalty was made by the Assessee Company? SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1713 (Bom-HC) : (2012) 047 (I) ITCL 0518 : (2012) 343 ITR 0108 : (2012) 249 CTR 0038 : (2012) 206 TAXMAN 0022 : (2012) 069 DTR 0042

INCOME TAX ACT, 1961

--Business expenditure--AllowabilityRoyalty paid to sister concern--The issue under consideration was whether Tribunal was justified in deleting the addition made by AO towards royalty payment even though he had given a clear finding that the payment of royalty was only a self-serving arrangement to pass on substantial financial benefits to the sister concern of assessee and further no benefit was derived by using the trademark for which the alleged payment of royalty was made. Held: The Tribunal by its order for assessment years 1996-97 to 1998-99 held that assessee had made payment for the use of trademark which was genuine and in accordance with business exigencies and same was held to be allowable as business expenditure. In that view of the matter, since the Tribunal had followed its own decision for the earlier years which had been accepted by the revenue, royalty payment was held as allowable and no substantial question of law would arise.

Income Tax Act, 1961 Section 37(1)

INCOME TAX ACT, 1961

--Deduction under section 10B--100 per cent export oriented undertakingsComputation--Assessee had a 100 per cent EOU which was entitled to deduction under section 10B. For the relevant year, assessee had suffered loss in EOU unit on account of current depreciation. While determining taxable income, it reduced loss sustained by EOU against the profits of other units. AO held that deduction under section 10B has to be given in respect of the profits of the undertaking independently and the loss sustained by the eligible unit could not be set-off against the income of the other units. CIT(A) confirmed the order of AO but the same was reversed by the Tribunal. Held: After the substitution of section 10B by the Finance Act, 2000, section 10B was no longer a provision for exemption, but a provision for deduction and the deduction has to be allowed against the total income of assessee. Section 70 provides for a setting off of a loss from one source falling under any head of income (other than capital gains) against income from any other source under the same head and there is no provision in section 10B by which a prohibition has been introduced by the legislature in setting off of a loss which is sustained from one source falling under the head of profits and gains of business against income from any other source under the same head. Therefore, assessee was entitled to set-off of a loss of EOU against the profits of other units.

Income Tax Act, 1961 Section 10B

Income Tax Act, 1961 Section 70

IN THE BOMBAY HIGH COURT

D.Y. CHANDRACHUD & M.S. SANKLECHA, JJ.

CIT v. Galaxy Surfactants Ltd.

ITA No. 3465 of 2010

7 February, 2012

IT : Loss of 100 per cent Export Oriented Unit (EOU) which is entitled to deduction under section 10B can be set-off against profit of other units under same head

Appellant by : Vimal Gupta

Respondent by : Percy J. Pardiwala and Atul K. Jasani

JUDGMENT

Dr. D.Y. Chandrachud, J.

This appeal by the Revenue under section 260A of the Income Tax Act, 1961, arises out of the decision rendered by the Income Tax Appellate Tribunal on 22-9-2009 in relation to assessment years 2005-06. The following two questions of law have been raised by the Revenue in this appeal :

'(A) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in deleting the addition made by the assessing officer towards royalty payment of Rs. 2,06,77,545 even though the assessing officer has given a clear finding that the payment of royalty was only a self serving arrangement to pass on substantial financial benefits to the sister concern of the Assessee Company and further no benefit was derived by using the trade mark for which the alleged payment of royalty was made by the Assessee Company?