PTL Enterprises Ltd. v. Dy. CIT

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The Tax Publishers2016 TaxPub(DT) 4676 (Coch-Trib) PTL Enterprises Ltd. v. Dy. CIT INCOME TAX ACT, 1961 --Head of income--Business income or income from other sourcesRehabilitation of sick company--Lease rentals on account of joint operation of plant--Receipts of lease rentals by a sick company on account of joint operation of its plant in pursuance of scheme for rehabilitation were assessable as business income and not as income from other sources.--Assessee-company was declared as sick and BIFR prepared a rehabilitation scheme. In terms of the said Scheme, A Tyres was to operate the plant jointly with the assessee on an irrecoverable lease of eight years which had been extended from time to time. In consideration of lease agreement A paid lease rentals which was declared by assessee as business income. AO assessed the lease rentals as income from other sources as he was of the view that there was purely an agreement for lease of factory premises and no scope for joint operations. *Held:* Assessee entered into arrangement with A to exploit commercial assets through its expertise and to derive income. There was no sale of assets or retrenchment of employees or even surrender of licences and registration, etc. It was assessee's responsibility to recruit labour and to purchase fuel and power required for running the plant, to insure and to maintain the plant. There was no intention of letting out the plant, building and licence. Production in the name of A was only to retain commercial viability and to augment financial position. Other than operating the plant, on joint basis, nothing else had happened. Impugned lease rentals were, therefore, assessable as business income. Income Tax Act, 1961 Section 14 *REFERRED :* FAVOUR : In assessee's favour A.Y. : 2010-11 INCOME TAX ACT, 1961 --Business expenditure--Consultancy feeIn respect of business of subsidiary company----Consultancy fee incurred by assessee company in respect of business of its subsidiary on account of commercial expediency was deductible in assessee's hands.--Assessee-company paid consultancy fee to 'M' and claimed deduction thereof. AO denied the deduction on the ground that the expense was related to a subsidiary company, therefore, deduction thereof was not allowable in assessee's hands. *Held:* 'M' had been engaged by assessee in respect of business of its subsidiary on account of commercial expediency. Assessee had to incur the expenditure to further expand and consolidate the business and to protect the investment made. AO did not doubt the genuineness of the consultancy fee nor the fact that same was incurred for business purposes, therefore, denial of deduction in assessee's hands was not justified. Income Tax Act, 1961 Section 37(1) *Relied:*CIT v. Holeim India (P) Ltd. (2014) 272 CTR 282. *REFERRED :* FAVOUR : In assessee's favour A.Y. : 2010-11 INCOME TAX ACT, 1961 --Business deduction under section 36(1)(iii)--Interest on borrowed capitalInvestment in subsidiaries--Investment not to earn dividend but to acquire controlling stake therein--Since investments in subsidiary companies were acquired not to earn dividend but to acquire controlling interest therein, assessee was, therefore, entitled to deduction of interest on borrowings availed of for the purpose of making such investments out of commercial expediency.--Assessee claimed deduction of interest on borrowed capital. AO noticed that assessee had investments amounting to Rs. 80 crores, however its borrowings amounted to Rs. 50 crores only. Accordingly, AO framed a view that entire interest liability was on account of investment in subsidiary companies. By Invoking section 14A, he disallowed the interest expenditure. *Held:* Object of making investments in subsidiary companies was not to earn dividend but to acquire controlling interest therein. Investments were made out of commercial expediency. Accordingly, interest expenditure was eligible for deduction under section 36(1)(iii). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 4676 (Coch-Trib)

PTL Enterprises Ltd. v. Dy. CIT

INCOME TAX ACT, 1961

--Head of income--Business income or income from other sourcesRehabilitation of sick company--Lease rentals on account of joint operation of plant--Receipts of lease rentals by a sick company on account of joint operation of its plant in pursuance of scheme for rehabilitation were assessable as business income and not as income from other sources.--Assessee-company was declared as sick and BIFR prepared a rehabilitation scheme. In terms of the said Scheme, A Tyres was to operate the plant jointly with the assessee on an irrecoverable lease of eight years which had been extended from time to time. In consideration of lease agreement A paid lease rentals which was declared by assessee as business income. AO assessed the lease rentals as income from other sources as he was of the view that there was purely an agreement for lease of factory premises and no scope for joint operations. Held: Assessee entered into arrangement with A to exploit commercial assets through its expertise and to derive income. There was no sale of assets or retrenchment of employees or even surrender of licences and registration, etc. It was assessee's responsibility to recruit labour and to purchase fuel and power required for running the plant, to insure and to maintain the plant. There was no intention of letting out the plant, building and licence. Production in the name of A was only to retain commercial viability and to augment financial position. Other than operating the plant, on joint basis, nothing else had happened. Impugned lease rentals were, therefore, assessable as business income.

Income Tax Act, 1961 Section 14

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2010-11

INCOME TAX ACT, 1961

--Business expenditure--Consultancy feeIn respect of business of subsidiary company----Consultancy fee incurred by assessee company in respect of business of its subsidiary on account of commercial expediency was deductible in assessee's hands.--Assessee-company paid consultancy fee to 'M' and claimed deduction thereof. AO denied the deduction on the ground that the expense was related to a subsidiary company, therefore, deduction thereof was not allowable in assessee's hands. Held: 'M' had been engaged by assessee in respect of business of its subsidiary on account of commercial expediency. Assessee had to incur the expenditure to further expand and consolidate the business and to protect the investment made. AO did not doubt the genuineness of the consultancy fee nor the fact that same was incurred for business purposes, therefore, denial of deduction in assessee's hands was not justified.

Income Tax Act, 1961 Section 37(1)

Relied:CIT v. Holeim India (P) Ltd. (2014) 272 CTR 282.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2010-11

INCOME TAX ACT, 1961

--Business deduction under section 36(1)(iii)--Interest on borrowed capitalInvestment in subsidiaries--Investment not to earn dividend but to acquire controlling stake therein--Since investments in subsidiary companies were acquired not to earn dividend but to acquire controlling interest therein, assessee was, therefore, entitled to deduction of interest on borrowings availed of for the purpose of making such investments out of commercial expediency.--Assessee claimed deduction of interest on borrowed capital. AO noticed that assessee had investments amounting to Rs. 80 crores, however its borrowings amounted to Rs. 50 crores only. Accordingly, AO framed a view that entire interest liability was on account of investment in subsidiary companies. By Invoking section 14A, he disallowed the interest expenditure. Held: Object of making investments in subsidiary companies was not to earn dividend but to acquire controlling interest therein. Investments were made out of commercial expediency. Accordingly, interest expenditure was eligible for deduction under section 36(1)(iii).