Karnataka H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in directing the AO not to deduct income-tax refunds of earlier years from the book profits in computing the deduction under s. 32AB ?

High Court Of Karnataka

CIT vs. Motor Industries Ltd.

Section 32AB

Asst. Year 1987-88

R. Gururajan & Jawad Rahim, JJ.

ITRC No. 18 of 2001

1st July, 2006

Counsel Appeared

M.V. Seshachala, for the Applicant : Soli E. Dastur for King & Patridge, for the Respondent

ORDER

R. Gururajan, J. :

Revenue is before us seeking for an answer to the following two questions of law :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in directing the AO not to deduct income-tax refunds of earlier years from the book profits in computing the deduction under s. 32AB ?

2. Whether the Tribunal is correct in law in holding that the income-tax refunds for earlier years are required to be added back for the purpose of allowing deductions under s. 32AB(3) is specified and exhaustive not to give scope for addition of refund of income-tax of earlier years as such ?” 2. The facts as narrated in the statement of facts are as under :

The assessee had claimed a deduction under s. 32AB of the IT Act of a sum of Rs. 4,94,53,038. The assessee had worked out the profits eligible for deduction under s. 32AB in a sum of Rs. 24,72,65,191 and had accordingly claimed a deduction of 20 per cent thereof in its return of income. The AO completed the assessment under s. 143(3) by an order dt. 14th Dec., 1989 and determined the profits eligible for deduction under s. 32AB at Rs. 22,75,39,047. He accordingly allowed a deduction for Rs. 4,55,07,809. An unsuccessful appeal was filed and thereafter the matter was taken to the Tribunal. Before the Tribunal, additional grounds were raised by the assessee with regard to applicability of s. 32AB. The Tribunal by a detailed order has chosen to give a direction to the AO not to deduct the amount of Rs. 1,66,25,550 from the book profits. In the light of this order, the Revenue sought for a reference of two questions of law in terms of s. 256(2). The Tribunal has now referred the above two questions in the light of the application at the instance of the Revenue.

3. Heard the learned counsel for the parties.

4. Learned counsel for the Revenue would argue that the Tribunal is wrong in giving relief to the respondent- assessee in the absence of any factual finding with regard to refund of income-tax in the case on hand. He would read to us para 18 to say that factual finding is necessary on the facts and circumstances of this case. Sri Dastur, learned counsel for the assessee would argue that the refund would arise only in the event of factual payment. According to him, the Tribunal is justified in giving relief to the assessee.

5. After hearing we have carefully perused the material on record.

6. Sec. 32AB provides for investment deposit account. Sec. 32AB provides for total income chargeable to tax under the head profits and gains of business or profession. Sub-s. (3) provides for the profits of business or profession of an assessee for the purposes of sub-s. (1). In the case on hand, additional grounds have been raised and it was permitted. The Tribunal thereafter has chosen to notice the submission on either side and ultimately it comes to a conclusion that while keeping in mind the general schemes with regard to interpreting the various

expressions like ‘provisions’ as appearing in sub-s. (3) of s. 32AB, one must restrict oneself to only the items specifically considered in the said sub-section. There cannot be any doubt about the fact that income-tax refunds cannot be considered to be an amount withdrawn from reserves or provisions. Hence we are of the opinion that the contention of the assessee that the income-tax refund amounts as credited to the P&L a/c are not required to be deducted from the book profits, is correct. The said finding in the light of the submission of Sri Dastur has to be accepted. The question of refund would arise only in the event of factual payment. There is absolutely no need for any payment as sought to be argued by the Revenue.

7. In these circumstances, we deem it proper to answer the questions of law raised by the Revenue against the Revenue and in favour of the assessee. Ordered accordingly. No costs.

[Citation : 286 ITR 531]

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