High Court Of Madhya Pradesh : Indore Bench
CIT vs. D & H Secheron Electrodes Ltd.
Section 32AB
Asst. Year 1989-90
A.M. Sapre & Ashok Kumar Tiwari, JJ.
IT Appeal No. 135 of 2003
31st March, 2006
Counsel Appeared
R.L. Jain with Ku. V. Mandlik, for the Appellant : Vijay Asudani, for the Respondent
JUDGMENT
A.M. Sapre, J. :
This is an appeal filed by Revenue (CIT) under s. 260A of the IT Act against an order dt. 30th June, 2003, passed by Income-tax Appellate Tribunal (for brevity hereinafter referred to as Tribunal) in ITA No. 107/Ind/1997. This appeal was admitted for final hearing on following substantial questions of law :
“1. Whether the Tribunal was justified in holding that assessee is entitled to get the benefit of profit earned out of sale of the assets while calculating the benefit available to him under s. 32AB of the IT Act ?
While granting the benefit to the assessee under s. 32AB of the IT Act, whether Tribunal was justified in placing reliance upon the authority of the Supreme Court reported in Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC), when admittedly s. 32AB was not on the statute book ?
Whether the law laid down by their Lordships of Hon’ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. (supra) which has interpreted s. 80E will apply to the facts of the case while interpreting s. 32AB ibid ? Whether profit earned by the assessee out of the sale of the assets can be taken into account while determining the benefits available to the assessee under s. 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 respondent (assessee) is a limited company engaged in the business of manufacture and sale of “electrodes”. For the asst. yr. 1989-90, the assessee claimed deduction under s. 32AB of the Act on their profit amounting to Rs. 1,85,88,564. This sum included a profit of Rs. 18,97,929 which the assessee earned by sale of fixed assets.
The question arose before the AO 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 s. 32AB. The contention of assessee was that it can be included. The AO did not accept the contention of assessee. By order dt. 25th July, 1996, the AO held that a profit of Rs. 18,97,928 earned by the assessee is not a profit, nor it can be so regarded as profit earned by the assessee from their business but it was a profit earned by sale of fixed assets and hence, the profit earned by sale of such asset cannot be included while calculating the deduction available to the assessee under s. 32AB. Accordingly, the AO excluded a sum of Rs. 18,97,929 from the total profit of assessee earned from the business and then calculated the deductions available to the assessee under s. 32AB of the Act. The assessee felt aggrieved of this order of AO, filed an appeal to CIT(A). By order dt. 29th Nov., 1996, the CIT(A) allowed the appeal insofar as this issue was concerned. It was held that in the light of decision of Supreme Court rendered in the case of Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC) even a profit earned by assessee from sale of any fixed assets can be included in the profit earned by them from their main business for the purpose of calculation of deductions under s. 32AB. In this view of the matter, the contention of assessee was accepted by CIT(A) and in consequence, the profit earned by assessee from sale of fixed assets was allowed to be included for the purpose of deductions available under s. 32AB of the Act. It is against this order of CIT(A), the Revenue filed an appeal to Tribunal. By impugned order, the Tribunal dismissed the appeal filed by the Revenue and upheld the order of CIT(A). It is against this order, the CIT(A) 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 the appellant (Revenue) while assailing the view taken by the Tribunal contended that both CIT(A) and Tribunal committed an error in placing reliance on the decision of Supreme Court rendered in the case of Cambay Electric (supra). According to learned counsel, the said decision has no application to the facts of this case. It was contended that so far as this case is concerned, the claim of assessee regarding profit earned by them by sale of fixed assets could be examined under s. 50 of the Act and secondly, it being not a profit earned by the assessee from their main business, the same could not have been taken into consideration for calculating the deductions available to them under s. 32AB. In reply, learned counsel for the respondent supported the view of the Tribunal.
Having heard learned counsel for the parties and having persued record of the case, we are inclined to allow the appeal.
In our considered view, plain reading of s. 32AB would go to show that in order to claim deductions under s. 32AB only the profit and gains of business or profession earned by the assessee is required to be taken into consideration. Any profit earned by sale of fixed assets by the assessee cannot be regarded and/or construed to be in the nature of profits and gains earned from the business which is being carried on by them. In other words, when the business of assessee is manufacture and sale of electrodes then any profit earned from this business activity can be taken into consideration while calculating the deductions available under s. 32AB. Since the sale of fixed assets is not the business activity of the assessee much less regular business activity and hence, the profit earned by the assessee from such sale would not partake the character of profit earned from their main business so as to entitle them to claim deduction under s. 32AB.
As rightly urged by learned counsel for the appellant, reliance placed by CIT(A) and Tribunal on a decision rendered by Supreme Court in the case of Cambay Electric (supra) was misplaced. In that case, the principal question that fell for consideration was regarding interpretation of s. 80E of the Act which provides for special kind of deduction in respect of profits and gains from specified industries. Firstly, the assessee in question is not carrying on the specified kind of business which is falling under s. 80E. Secondly, it is also not a specified company engaged in that kind of business to which s. 80E applies and lastly, it is not a case falling under s. 80E. In these circumstances, the interpretation made by Supreme Court of the words, occurring in s. 80E would not apply for interpreting the words used in s. 32AB. We are, therefore, clearly of the view that CIT(A) and Tribunal committed an error of law in placing reliance on the law laid down by Supreme Court in the case of Cambay Electric (supra) which has no application to the facts of this case.
As rightly urged by learned counsel for the appellant, the case of assessee would fall in s. 50 of the Act for the purpose of calculating capital gains earned in the case of sale of depreciable assets. In other words, the profit earned by the assessee by sale of fixed assets should have been dealt with for determining the taxing liability by taking recourse to the provisions of s. 50 ibid because the assets sold by the assessee were depreciable assets.
In view of foregoing discussion, we hold that AO was right in holding that profit earned by assessee amounting to Rs. 18,97,929 from sale of fixed assets during the assessment year in question could not be included in the main profit of assessee earned from their business for calculating the deductions available under s. 32AB and, therefore, had to be excluded from such calculations.
Accordingly, while answering the questions framed in favour of appellant, we allow the appeal and set aside the impugned order.
[Citation : 298 ITR 101]
