The Commissioner Of Income Taxtamil Nadu – I, Madras v. M/S. Tube Investments Of India Ltd.tiam House, 28, Rajaji Salaichennai 600 001

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAMTHE HONOURABLE MR. JUSTICE R.SUDHAKARANDTHE HONOURABLE MR. JUSTICE R.KARUPPIAH T.C. NO. 524 OF 2007 The Commissioner of Income TaxTamil Nadu – I, Madras... Appellant / Respondent - Vs - M/s. Tube Investments of India Ltd.Tiam House, 28, Rajaji SalaiChennai 600 001. Appeal filed under Section 260-A of the Income Tax Act againstthe order dated 21.07.06, passed by the Income Tax AppellateTribunal, Madras 'B' Bench, made in ITA No.703/Mds/2001. against the Commissioner of Income Tax (Appeals) V dated28.2.2001 made in ITA.NO.94 /00-01 against the Joint Commissionerof income Tax. Spl.Range I dated 27.3.2000 made in PAN.No.GI No.17-1/97-98. For Respondent : Ms. G.Varshitha for Mr. Vaitheeswaran JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) Aggrieved by the order of the Appellate Tribunal in dismissingthe appeal filed by it, the Revenue is before this Courtchallenging the said order by filing the present appeal and thisCourt, vide order dated 12.6.07, framed for following substantialquestions of law for consideration :- “1) Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was right inlaw in holding that the scrap sales is to beexcluded from the total turn over for the purposeof computing the income under Section 80 HHC of thehttps://hcservices.ecourts.gov.in/hcservices/Income Tax Act, 1961? 2) Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was right in restricting the expenditure on earning exemptincome to 2% when the assessing officer has provedon a scientific basis that the interest paid onloans taken for investment in the exempt bonds wasmuch larger?” 2. The appellant/assessee is in the manufacture and sale ofcycle, cycle accessories, steel tubes, strips, etc. In the courseof assessment, the Assessing Officer included the sales tax andexcise duty and scrap sales as forming part of the turn over incomputing income under Section 80 HHC. Aggrieved against the saidorder, the assessee preferred an appeal before the CIT (Appeals)and the CIT (Appeals) upheld the order of the Assessing Officer. 3. Aggrieved over the same, the assessee preferred appealbefore the Income Tax Appellate Tribunal and the Tribunal,following the decision of the Madras High Court in CIT – Vs – M/s.Sundaram Fastners Ltd. (272 ITR 652) and CIT – Vs – Wheels IndiaLtd. (275 ITR 319), Fenner India Ltd. - Vs – CIT (241 ITR 803),allowed the appeal filed by the assessee. Aggrieved by the saidorder, the Revenue is before this Court by filing the above appeal. 4. Heard the learned standing counsel appearing for theappellant and the learned counsel appearing for the respondent. 3. Aggrieved over the same, the assessee preferred appealbefore the Income Tax Appellate Tribunal and the Tribunal,following the decision of the Madras High Court in CIT – Vs – M/s.Sundaram Fastners Ltd. (272 ITR 652) and CIT – Vs – Wheels IndiaLtd. (275 ITR 319), Fenner India Ltd. - Vs – CIT (241 ITR 803),allowed the appeal filed by the assessee. Aggrieved by the saidorder, the Revenue is before this Court by filing the above appeal. 4. Heard the learned standing counsel appearing for theappellant and the learned counsel appearing for the respondent. 5. On the first question of law, the Tribunal, considering thecomputation of deduction under Section 80 HHC, has held as under :-“9. The next issue in this appeal is regardingcomputation of deduction under Sec. 80 HHC of theAct on account of inclusion of excise duty, salestax recoveries and scrap sales in the totalturnover. We find that the issue of excise dutyand sales tax are covered by the decisions of theHon'ble Jurisdictional High Court in the cases ofCIT – Vs – Sundaram Fasteners Ltd. (272 ITR 652)and CIT – Vs – Wheels India Ltd. (2005 (275) ITR319), wherein it was held that excise duty andsales tax would not form part of the total turnoverfor the purpose of computing deduction under Sec.80 HHC of the Act. Respectfully following theabove decisions of the Hon'ble Madras High Court inthe cases cited supra, we decide the issue infavour of the assessee and against the Revenue. Asregards the issue of scrap sales, it is covered bythe decision of the Hon'ble Madras High Court inthe case of Fenner (India) Ltd. - Vs – CIT (2000(241) ITR 803) and the Tribunal's order in the caseof M/s.Moorco (India) Ltd. Respectfully followingthe above decision of the Hon'bel Madras High Courtand the Tribunal, we decide this issue in favour ofhttps://hcservices.ecourts.gov.in/hcservices/the assessee and against the Revenue.” 6. From the above, it is clear that the abovesaid issue standsresolved by the decision of this Court in Fenner India's case(supra) and, therefore, the first question of law is answeredagainst the Revenue and in favour of the assessee. 7. Insofar as the 2[nd] question of law is concerned, theTribunal has considered the same, the relevant portion of which isextracted hereinbelow :- “8. The next issue in this appeal is against thedisallowance of proportionate expenses on exemptedincome. After considering the rival submissionsand going through the case records, it is observedthat the assessee has claimed exemption frominterest on tax free bonds. It is fact that theassessee has made systematic huge investmentsresulting in income and no expenditure in the formof expenditure and management have been made by theassessee. As the income is exempted, proportionateexpenditure in this regard to be disallowed but asto how much. This issue has to be considered. Itis to be noted that reasonable disallowance can bemade i.e., to the extent of 2% of the exemptedincome. Accordingly, the Assessing Officer isdirected to disallow proportionate expenditure tothe extent of 2% of the exempted income as held bythe Hon'ble Tribunal, Chennai Bench 'C' in the caseof Southern Petro Chemical Industries – Vs – DCIT(2005 (93) TTJ 161), wherein it was held asunder :-“Exemption under S. 10 (33) – Dividend –Expenditure attributable to earning of dividend– Investment decisions are very strategicdecisions in which top management is involvedand, therefore, proportionate managementexpenses are required to be deducted whilecomputing the dividend income for the purposeof exemption under S. 10 (33).”Respectfully following the decision of theTribunal, this issue is allowed partly.” 8. It is brought to the notice of this Court that the 2[nd]question of law has also been decided against the Revenue by thisCourt in the decision reported in EID Parry – Vs – The Asst.Commissioner of Income Tax, Chennai (T.C. (A) No.2511/06 dated30.10.12). In the said judgment, this Court considered twoquestions of law as under: “(i) Whether on the facts and in thecircumstances of the case, the Appellate Tribunal wasright in law in upholding the estimate of expenses at2% deemed to have been incurred in respect of dividendincome, when no such expenses were incurred?https://hcservices.ecourts.gov.in/hcservices/(ii) Whether on the facts and in thecircumstances of the case, the Appellate Tribunal wasright in law in upholding the addition of the estimate expenses at the rate of 2% on dividend income whilecomputing book profits, when no such expenses wereincurred?and answered the same as under: “2. As far as first and second questions of laware concerned, learned counsel for the assesseefairly submits that the same is covered against theassessee by reason of decision of this Courtrendered in assessee's own case in T.C. No.2287 of2006 dated 8.8.12. Accordingly, the above twoquestions of law are answered against theassessee.”The said judgment squarely applies to the facts of the present caseand, the 2[nd] question of law is answered accordingly. 10. Finding no merit warranting interference with the orderpassed by the Tribunal, this appeal fails and the same isdismissed. Sd/- Asst.Registrar (Records) /true copy/ GLN/sasi Sub Asst. Registrar To 1. The Income Tax Appellate Tribunal Madras 'B' Bench Chennai. 2. The Commissioner of Income Tax (Appeals)V121 Mahatma Gandhi RoadChennai-39 3. The Joint Commissioner of Income taxSpl.Range I, Chennai-39 1 cc to mr.T. Ravikumar, Advocate, SR. 619881 cc to Mr.K.Vaitheeswaran, Advocate, Sr. 62797 vsn (co)KK 19/1 https://hcservices.ecourts.gov.in/hcservices/