The Commissioer of Income Tax I V. M/s Globe Organics Limited

ITTA/254/2003

AI Insights

The case involves the Commissioner of Income Tax-I, Hyderabad as the appellant and M/s. Globe Organics Limited as the respondent. The respondent, engaged in manufacturing and exporting drugs, claimed deductions in their income tax returns for the assessment year 1993-94 under various heads including interest received and lease rent. The Assessing Officer disallowed these claims, which were partially overturned by the Commissioner of Income Tax (Appeals) and fully by the Tribunal. However, the Tribunal's decision was contested by the Commissioner in this appeal, focusing on the deductions related to intercorporate deposits and lease rent. The court ruled that these deductions were not part of the manufacturing activities and thus not eligible for relief under Section 80HH.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 762063 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 12-11-2014
• Assessment Year: misc
• Other Referred Cases: I.T.T.A.No.216 of 2003
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: PUSHYAM KIRAN
• Assessee Lawyers: J V PRASAD
• Keywords: Assessment Year; Backward Area; Deduction; Exporting; Income Tax; Lease Rent; Manufacturing; Intercorporate Deposits
• Section: 80HH; 260A

Judgement Text

" * THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.No.254 of 2003 %Date: 12.11.2014 #The Commissioner of Income Tax-I, Hyderabad. …appellant. and $M/s. Globe Organics Limited. …Respondent ! Counsel for appellant: Sri J.V.Prasad ^ Counsel for Respondent : Sri Pushyam Kiran < GIST: > HEAD NOTE: ? Cases referred THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.254 of 2003 JUDGMENT: (Per the Hon’ble Sri Justice L.Narasimha Reddy) The respondent is a manufacturer and exporter of drugs and intermediaries and the unit was established in an area declared as ‘Backward’. In the income tax returns submitted for the assessment year 1993-94, it claimed deduction under four heads, viz., (a) interest received on letter of credit/margin money, being Rs.4,35,858/- (b) interest on intercorporate deposits of Rs.10,30,980/- (c) interest in the form of rebate given by ICICI Bank, being Rs.7,30,000/- and (d) lease rent of Rs.25,000/-. The Assessing Officer disallowed all the claims. In the appeal preferred by the respondent, the Commissioner of Income Tax (Appeals) granted the relief in respect of items (a) and (c). The respondent filed I.T.A.No.1902/Hyd/1996, feeling aggrieved by the denial of relief in respect of (b) and (d) before the Hyderabad Bench ‘B’ of the Income Tax Appellate Tribunal (for short ‘the Tribunal’). Through order, dated 27.11.2001, the Tribunal allowed the appeal. Hence, this further appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’). Heard Sri J.V.Prasad, learned counsel for the appellant and Sri Pushyam Kiran, learned counsel for the respondent. Though the Assessing Officer disallowed four claims made by the respondent, the Commissioner granted the relief in respect of two, and the relief, as regards remaining two, was granted by the Tribunal. The order passed by the Commissioner granting relief in relation to items (a) and (c) has assumed finality. We are concerned with the grant of relief as regards items (b) and (d). The deduction allowed under Section 80HH of the Act is in the form of incentive for establishment of an industry in a backward area. The interest paid on intercorporate deposits can by no means is said to be an activity of the industry so established. When the making of intercorporate deposits itself is not part of the manufacturing activity, the question of the income derived therefrom being treated as qualified for deduction under Section 80HH of the Act, does not arise. In I.T.T.A.No.216 of 2003, this Court dealt with the matter and the same factual situation obtains in this case also. The other item regarding which the Tribunal granted the relief is the lease rent, aggregating to Rs.25,000/-. Necessary facts are not placed before this Court. In case the lease is referable to, or connected with the principal activity of manufacture, the deduction can certainly be allowed. However, if the principal activity is only of manufacturing drugs, it is difficult to infer the leasing of any machinery or premises as part of that activity. At any rate, the Tribunal also did not analyse and record a finding that the leasing was part of the principal activity of the respondent. Therefore, we find that the view taken by the Tribunal cannot be sustained in law. Hence, the appeal is allowed and the order passed by the Tribunal is set aside. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall also stand disposed of. ____________________ L.NARASIMHA REDDY, J. _____________________ CHALLA KODANDA RAM, J. Date:12.11.2014 L.R. copy to be marked. GJ "