COMMISSIONER OF INCOME TAX v. D & H SECHERON ELECTRODES LTD
[Citation -2006-LL-0331-8]

Citation 2006-LL-0331-8
Appellant Name COMMISSIONER OF INCOME TAX
Respondent Name D & H SECHERON ELECTRODES LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 31/03/2006
Assessment Year 1989-90
Judgment View Judgment
Keyword Tags profits and gains of business or profession • business activity • fixed asset
Bot Summary: While granting the benefit to the assessee under section 32AB of the Income-tax Act, whether the Tribunal was justified in placing reliance upon the authority of the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT 1978 113 ITR 84, when admittedly section 32AB was not on the statute book 3. Whether profit earned by the assessee out of the sale of the assets can be taken into account while determining the benefit available to the assessee under section 32AB of the Act Heard Shri R. L. Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the appellant/Revenue and Shri Vijay Asudani, learned counsel for the respondent/assessee. The question arose before the Assessing Officer as to whether profit earned by the assessee amounting to Rs. 18,97,929 by sale of fixed assets can be included in the profit earned out of their business for the purpose of claiming deduction under section 32AB. The contention of the assessee was that it can be included. By order dated July 25, 1996, the Assessing Officer held that a profit of Rs. 18,97,928 earned by the assessee is not a profit, nor can it be so regarded as profit earned by the assessee from their business but it was a profit earned by sale of one fixed asset and hence, the profit earned by sale of such asset cannot be included while calculating the deduction available to the assessee under section 32AB. Accordingly, the Assessing Officer excluded the sum of Rs. 18,97,929 from the total profit of the assessee earned from the business and then calculated the deduction available to the assessee under section 32AB of the Act. In our considered view a plain reading of section 32AB would go to show that in order to claim deduction under section 32AB only the profits and gains of business or profession earned by the assessee is required to be taken into consideration. Firstly, the assessee in question is not carrying on the specified kind of business which is falling under section 80E. Secondly, it is also not a specified company engaged in that kind of business to which section 80E applies and, lastly, it is not a case falling under section 80E. In these circumstances, the interpretation made by the Supreme Court of the words, occurring in section 80E would not apply for interpreting the words used in section 32AB. We are clearly of the view that the Commissioner of Income-tax and the Tribunal committed an error of law in placing reliance on the law laid down by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. 1978 113 ITR 84 which has no application to the facts of this case. In view of the foregoing discussion, we hold that the Assessing Officer was right in holding that the profit earned by the assessee amounting to Rs. 18,97,929 from sale of fixed asset during the assessment year in question could not be included in the main profit of the assessee earned from their business for calculating the deduction available under section 32AB and had to be excluded from such calculations.


JUDGMENT judgment of court was delivered by A. M. Sapre J. This is appeal filed by Revenue (Commissioner of Income-tax) under section 260A of Income-tax Act, 1961, against order dated June 30, 2003, passed by Income-tax Appellate Tribunal (for brevity hereinafter referred to as Tribunal ) in I. T. A. No. 107/ Ind./97. This appeal was admitted for final hearing on following substantial questions of law: 1. Whether Tribunal was justified in holding that assessee is entitled to get benefit of profit earned out of sale of assets while calculating benefit available to him under section 32AB of Income-tax Act? 2. While granting benefit to assessee under section 32AB of Income-tax Act, whether Tribunal was justified in placing reliance upon authority of Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, when admittedly section 32AB was not on statute book? 3. Whether law laid down by their Lordships of hon ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84 which has interpreted section 80E will apply to facts of case while interpreting section 32AB ibid? 4. Whether profit earned by assessee out of sale of assets can be taken into account while determining benefit available to assessee under section 32AB of Act? Heard Shri R. L. Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for appellant/Revenue and Shri Vijay Asudani, learned counsel for respondent/assessee. respondent (assessee) is limited company engaged in business of manufacture and sale of electrodes . For assessment year 1989-90, assessee claimed deduction under section 32AB of Act on their profit amounting to Rs. 1,85,88,564. This sum included profit of Rs. 18,97,929 which assessee earned by sale of one fixed asset. question arose before Assessing Officer as to whether profit earned by assessee amounting to Rs. 18,97,929 by sale of fixed assets can be included in profit earned out of their business for purpose of claiming deduction under section 32AB. contention of assessee was that it can be included. Assessing Officer did not accept contention of assessee. By order dated July 25, 1996, Assessing Officer held that profit of Rs. 18,97,928 earned by assessee is not profit, nor can it be so regarded as profit earned by assessee from their business but it was profit earned by sale of one fixed asset and hence, profit earned by sale of such asset cannot be included while calculating deduction available to assessee under section 32AB. Accordingly, Assessing Officer excluded sum of Rs. 18,97,929 from total profit of assessee earned from business and then calculated deduction available to assessee under section 32AB of Act. assessee felt aggrieved of this order of Assessing Officer, filed appeal to Commissioner of Income-tax (Appeals). By order dated November 29, 1996, Commissioner of Income-tax (Appeals) allowed appeal in so far as this issue was concerned. It was held that in light of decision of Supreme Court rendered in case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 even profit earned by assessee from sale of any fixed assets can be included in profit earned by them from their main business for purpose of calculation of deduction under section 32AB. In this view of matter, contention of assessee was accepted by Commissioner of Income-tax (Appeals) and in consequence, profit earned by assessee from sale of fixed assets was allowed to be included for purpose of deduction available under section 32AB of Act. It is against this order of Commissioner of Income-tax (Appeals), Revenue filed appeal to Tribunal. By impugned order, Tribunal dismissed appeal filed by Revenue and upheld order of Commissioner of Income-tax (Appeals). It is against this order, Commissioner of Income-tax (Revenue) has felt aggrieved and filed appeal. As stated supra, this appeal was admitted for final hearing on aforementioned substantial questions of law. Learned counsel for appellant (Revenue) while assailing view taken by Tribunal contended that both Commissioner of Incometax (Appeals) and Tribunal committed error in placing reliance on decision of Supreme Court rendered in case of Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84. According to learned counsel, said decision has no application to facts of this case. It was contended that so far as this case is concerned, claim of assessee regarding profit earned by them by sale of fixed assets could be examined under section 50 of Act and, secondly, it being not profit earned by assessee from their main business, same could not have been taken into consideration for calculating deductions available to them under section 32AB. In reply, learned counsel for respondent supported view of Tribunal. Having heard learned counsel for parties and having perused record of case, we are inclined to allow appeal. In our considered view plain reading of section 32AB would go to show that in order to claim deduction under section 32AB only profits and gains of business or profession earned by assessee is required to be taken into consideration. Any profit earned by sale of fixed assets by assessee cannot be regarded and/or construed to be in nature of profits and gains earned from business which is being carried on by them. In other words, when business of assessee is to manufacture and sale of electrodes then any profit earned from this business activity which can be taken into consideration while calculating deduction available under section 32AB. Since sale of fixed assets is not business activity of assessee much less regular business activity and hence, profit earned by assessee from such sale would not partake of character of profit earned from their main business so as to entitle them to claim deduction under section 32AB. As rightly urged by learned counsel for appellant, reliance placed by Commissioner of Income-tax (Appeals) and Tribunal on decision rendered by Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84 was misplaced. In that case, principal question that fell for consideration was regarding interpretation of section 80E of Act which provides for special kind of deduction in respect of profits and gains from specified industries. Firstly, assessee in question is not carrying on specified kind of business which is falling under section 80E. Secondly, it is also not specified company engaged in that kind of business to which section 80E applies and, lastly, it is not case falling under section 80E. In these circumstances, interpretation made by Supreme Court of words, occurring in section 80E would not apply for interpreting words used in section 32AB. We are, therefore, clearly of view that Commissioner of Income-tax (Appeals) and Tribunal committed error of law in placing reliance on law laid down by Supreme Court in case of Cambay Electric Supply Industrial Co. Ltd. [1978] 113 ITR 84 which has no application to facts of this case. As rightly urged by learned counsel for appellant, case of assessee would fall in section 50 of Act for purpose of calculating capital gains earned in case of sale of depreciable assets. In other words, profit earned by assessee by sale of fixed assets should have been dealt with for determining taxi liability by taking recourse to provisions of section 50 ibid because asset sold by assessee was depreciable assets. In view of foregoing discussion, we hold that Assessing Officer was right in holding that profit earned by assessee amounting to Rs. 18,97,929 from sale of fixed asset during assessment year in question could not be included in main profit of assessee earned from their business for calculating deduction available under section 32AB and, therefore, had to be excluded from such calculations. Accordingly, while answering questions framed in favour of appellant, we allow appeal and set aside impugned order. No costs. *** COMMISSIONER OF INCOME TAX v. D & H SECHERON ELECTRODES LTD.
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