CIT v. Reliance Industries Ltd.

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The Tax PublishersCEA No. 1299 of 2008 2012 TaxPub(DT) 0622 (Bom-HC) : (2011) 339 ITR 0632 INCOME TAX ACT, 1961 MAT - BOOK PROFIT -Computation -Expenses incurred in earning dividend income The issue arose as to whether Tribunal was right in holding that expenditure for earning dividend income cannot be estimated and therefore it cannot be allowed while computing book profits. Held: CIT (A) held that certain administrative expenses were required to be incurred to keep track of receipt and accruals of dividend income and accordingly, it was not possible to accept that no expenditure had been incurred out of dividend income. Accordingly, it was held that disallowance was misconceived and it was deleted. Income-tax Act, 1961, Section 115J Decision: In favour of assessee. INCOME TAX ACT, 1961 Business disallowance under section 43B - Excise and custom duty payment -Calculation of closing stock The issue arose as to whether Tribunal was right in disallowing under section 43B the unpaid custom duty and excise duty including in closing stock. Held: It was directed to follow decision lad down in judgment of Supreme Court in ITR Vol. 266 (2004) 99 in case of Berger Paints India Ltd. v. CIT(2004) 266 ITR 99 (SC): 2004 TaxPub(DT) 1388 (SC). Income-tax Act, 1961, Section 43B Decision: In favour of assessee. INCOME TAX ACT, 1961 Income - Capital or revenue receipt -Subsidy in form of sales-tax incentive The issue arose as to whether Tribunal was right in holding that sales tax incentive is a capital receipt. Held: Assessee would become entitled for sales tax incentive even before commencement of production, which implies that object of incentive, was to fund a part of cost of setting up of factory in notified backward area. It was found that object of subsidy was to encourage the setting up of industries in backward area by generating employment therein. Since, object of subsidy scheme was to enable assessee to run the business more profitably then the receipt was on revenue account, as object of assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, subsidy was of capital account. Income-tax Act, 1961, Section 4 Decision: In favour of revenue. Case Law Analysis: CIT v. Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC) : 2008 TaxPub(DT) 2302 (SC) SUBSCRIBE FOR FULL CONTENT

The Tax PublishersCEA No. 1299 of 2008
2012 TaxPub(DT) 0622 (Bom-HC) : (2011) 339 ITR 0632

INCOME TAX ACT, 1961

MAT - BOOK PROFIT -Computation -Expenses incurred in earning dividend income

The issue arose as to whether Tribunal was right in holding that expenditure for earning dividend income cannot be estimated and therefore it cannot be allowed while computing book profits. Held: CIT (A) held that certain administrative expenses were required to be incurred to keep track of receipt and accruals of dividend income and accordingly, it was not possible to accept that no expenditure had been incurred out of dividend income. Accordingly, it was held that disallowance was misconceived and it was deleted.

Income-tax Act, 1961, Section 115J

Decision: In favour of assessee.

INCOME TAX ACT, 1961

Business disallowance under section 43B - Excise and custom duty payment -Calculation of closing stock

The issue arose as to whether Tribunal was right in disallowing under section 43B the unpaid custom duty and excise duty including in closing stock. Held: It was directed to follow decision lad down in judgment of Supreme Court in ITR Vol. 266 (2004) 99 in case of Berger Paints India Ltd. v. CIT(2004) 266 ITR 99 (SC): 2004 TaxPub(DT) 1388 (SC).

Income-tax Act, 1961, Section 43B

Decision: In favour of assessee.

INCOME TAX ACT, 1961

Income - Capital or revenue receipt -Subsidy in form of sales-tax incentive

The issue arose as to whether Tribunal was right in holding that sales tax incentive is a capital receipt. Held: Assessee would become entitled for sales tax incentive even before commencement of production, which implies that object of incentive, was to fund a part of cost of setting up of factory in notified backward area. It was found that object of subsidy was to encourage the setting up of industries in backward area by generating employment therein. Since, object of subsidy scheme was to enable assessee to run the business more profitably then the receipt was on revenue account, as object of assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, subsidy was of capital account.

Income-tax Act, 1961, Section 4

Decision: In favour of revenue.

Case Law Analysis: CIT v. Ponni Sugars and Chemicals Ltd. (2008) 306 ITR 392 (SC) : 2008 TaxPub(DT) 2302 (SC)