The Commissioner of Income Tax, Chennai vs M/s. Brakes India Limited

T.S. Sivagnanam, J.—These Tax Case (Appeals) by the Revenue are directed against the common order dated 10.11.2006 passed by the Income Tax Appellate Tribunal in I.T.A. Nos. 916/Mds/2002, 968/Mds/2001, 1947/Mds/2002 and 1948/Mds/2002 for the assessment years 1998-99 and 1991-92 and the appeals have been admitted on the following questions of law:

Whether the Tribunal was right in reducing the claimed deduction u/s 80IA, when the assessee did not consider allocation of certain expenditure while computing deduction u/s 80IA?

Whether in the facts and circumstances of the case, the Tribunal was right in holding that interest on interest is payable u/s 244, without going into the facts of the case, reason for the delay and the burden of the exchequer involved and various other issues?

The respondent/assessee filed its return of income admitting a total income of Rs. 25,30,861/- for the assessment year 1998-99. They claimed deduction u/s 80HHC of the Income Tax Act, (the Act) without including sales tax collections as part of total turnover. The Assessing Officer recalculated the deduction after inclusion of the said amount in the total turnover. Further, while granting deduction u/s 80HHC of the Act, the Assessing Officer excluded 90% of the lease rent, service charges, technical know-how fees and sub-contract work charges in terms of explanation (baa). During the same assessment year the assessee claimed deduction u/s 80IA of the Act. The Assessing Officer recalculated the assessment after considering the allocation of certain expenditure in relation to that particular unit. For the assessment year 1991-92, with regard to the refund, the Assessing Officer calculated interest payable on the belated refund including interest u/s 244A of the Act. On a petition filed by the assessee u/s 154 of the Act, the mistakes were rectified and the working of interest u/s 244A of the Act was re-worked.

The assessee preferred appeal to the Commissioner of Income Tax (Appeals) and the First Appellate Authority by following the decision of the Bombay High Court in the case of Commissioner of Income Tax Vs. Sudarshan Chemicals Industries Ltd., Rathi Engineering Works and Klockner Windsor (I) Ltd., allowed the appeal filed by the assessee. As regards the application of explanation (baa) with regard to receipt of service charges etc., the First Appellate Authority affirmed the order passed by the Assessing Officer. With regard to computing deduction u/s 80IA of the Act, the matter was remitted back to the Assessing Officer to recompute the deduction following the earlier orders in the assessee''s own case. As regards the interest u/s 244(1A) of the Act, the case was decided in favour of the assessee.

Aggrieved by such order, the Revenue as well as the assessee filed appeals before the Income Tax Appellate Tribunal (The Tribunal). The Tribunal following the decision of this Court in the case of The Commissioner of Income Tax, Tamilnadu-I, Madras Vs. Wheels India Limited, dismissed the Revenue''s appeal. As regards deduction u/s 80HHC of the Act on the exclusion of 90% of lease charges etc., the Tribunal held that the deduction form part of the total turnover u/s 80HHC of the Act. In support of such conclusion reliance was placed on its decision in the case of (2005) 97 ITD 306 . Accordingly, the assessee''s appeal was allowed regarding the deduction u/s 80IA of the Act and the appeal filed by the Revenue was dismissed. With regard to the interest u/s 244(1A) of the Act, the Tribunal following the decision of the Hon''ble Supreme Court in the case of Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, rejected the Revenue''s appeal.

Challenging this order passed by the Tribunal, the Revenue has preferred these Tax Case (Appeals), which have been admitted on the questions referred to above.

As regards the second question, which has been framed for consideration in these Tax Case (Appeals), whether in the facts and circumstances of the case, the Tribunal was right in holding that interest on interest is payable u/s 244, this issue is no longer res integra in the light of the recent decision of the Hon''ble Supreme Court in the case of Commissioner of Income Tax, Gujarat vs. Gujarat Fluoro Chemical in SLP(C) No. 11406 of 2008 and etc. batch dated 18.09.2013 wherein the Hon''ble Supreme Court pointed out that the Legislature by the Act 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A to the Act, which provides for interest on refunds under various contingencies and that it is only that interest provided for under the Statute, which may be claimed by an assessee from the Revenue and no other interest on such statutory interest.

The aforesaid decision of the Hon''ble Supreme Court arose out of the reference made by a bench of two Hon''ble Judges referring the matter doubting the correctness or otherwise of the decision of the Hon''ble Supreme Court in the case of Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, on which reliance was placed by the Tribunal in the instant case and the Hon''ble Supreme Court clarified that in the case of Sandvik Asia Limited (cited supra), the Hon''ble Supreme Court was considering the issue as to whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to delay in its payment after the lapse of statutory period and on the facts of the said case, the Hon''ble Supreme Court came to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount, which included the statutory interest and therefore, directed the Revenue to pay compensation for the same and not an interest on interest.

In the light of the recent decision of the Hon''ble Supreme Court in the case of Gujarat Fluoro Chemicals (cited supra), question No. 2 is answered as against the assessee.

The first question, which has been framed for consideration, as to "whether the Tribunal was right in reducing the claimed deduction u/s 80IA, when the assessee did not consider allocation of certain expenditure while computing deduction u/s 80IA", the First Appellate Authority, in its order dated 28.03.2001, while considering this question observed that as in the earlier years, the Assessing Officer while computing profits of the industrial undertaking reduced expenses on proportionate basis as relating to Unit No. 26 and this point has been dealt with in the assessee''s own case for the assessment year 1992-93 in ITA Nos. 85/96-97 and for the assessment year 1993-94 in ITA No. 75/1996-97 in respect of similar deduction under 80 HHC of the Act. For the said reason the First Appellate Authority directed the Assessing Officer to not to reduce the above expenses from the profits of the industrial undertaking for the purpose of Section 80IA of the Act. On appeal by the Revenue, the Tribunal while considering the said issue set aside the finding rendered by the First Appellate Authority and restored the matter to the files of the Assessing officer with a direction to examine whether the above receipts were derived from manufacturing activities of the assessee and if it is found that the same were derived from manufacturing activity, it should be included in the profit of the industrial undertaking and such exercise to be done after affording opportunity of hearing the assessee.

Before us, the Revenue would contend that though the Revenue have serious objection to the remand order passed by the Tribunal, the only objection voiced by learned Standing Counsel appearing for the Revenue is that the Tribunal should have directed the Assessing Officer to consider the receipts unit wise and not in toto so that the relief u/s 80IA of the Act would be correctly made out.

We agree with the said submission made by the learned Standing Counsel for the Revenue. Consequently, while confirming the order of the Tribunal, we remand the matter back to the Assessing Officer directing him to look at the scrap sales and labour work and other interest receipts vis-a-vis unit wise for the purpose of computing deduction u/s 80IA of the Act. With the above direction, all these Tax Case (Appeals) are disposed of. No costs.