Income-tax---

----Business expenditure---Investment deposit ---Assessee engaged in manufacture and sale of tea---Interest and dividend not includible in income for purposes of calculating deduction---Indian Income Tax Act, 1961, S.32-AB.

The assessee-company owned two tea estates and its business was to grow, manufacture and sell tea. The question before the Court was whether interest and dividend were to be included in its income for the purpose of calculating the deduction under section 32-AB of the Income Tax Act, 1961:

Held, that in order to invoke the provisions of section 32-AB of the Act, the interest and dividend must be out of the income of the assessee under the head "Profits and gains of business or profession". Hence, the interest and dividend could not be included in the income of the assessee company for calculating the deduction under section 32-AB of the Act.

U. Bhuyan for the Commissioner.

R.K. Joshi for the Assessee.

JUDGMENT

D. N. BARUAH, J. ---By this reference under section 256(1) of the Income Tax Act, 1961 (for short, "the Act"), the following question has been referred for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that interest and dividend are to be included in income for the purpose of deduction under section 32-AB of the Income Tax Act, 1961?"

The facts for the purpose of answering this question are:

The assessee-company owns two estates, namely, Dinjoye Tea Estate and Limbuguri Tea Estate. The business of the assessee-company is to grow, manufacture and sale of tea. The relevant assessment year was 1988-89. The Assessing Officer completed the assessment under section 143(3) of the Act determining the total income at Rs.45,26,500. The assessee-company claimed deduction of an amount of Rs.1,97,310 received on tax-free bonds. However, the Assessing Officer did not accept the contention of the assessee-company and accordingly refused to deduct the same. The assessee-company also claimed deduction under the provisions of section 32-AB of the Act on the basis of the audit report under Form No.3AA. The Assessing Officer held that in the audit report under section 32-AB, while computing the profit of business, the auditor did not exclude interest /dividend and other income not relating to the tea business. The Assessing Officer partly disallowed such claim. The assessee-company claimed deduction under section 32-AB of the Act of an amount of Rs.12,53,735 in Dinjoye Tea Estate and another sum of Rs.6,04,425 in Limbuguri Tea Estate on the basis of the audit report. The Assessing Officer held that the interest and dividend were no doubt investment of income not related to tea business and were income from other sources. Therefore, the Assessing Officer refused to grant the deduction. On appeal before the commissioner of Income-tax (Appeals), the appeal was partly allowed as indicated in the order. The assessee made further appeal before the Tribunal. The Tribunal revised the finding of the authorities below by observing, thus:

"We are convinced that income from dividend and interest should be considered as business income as per the Companies Act, 1956, and for the purpose of eligible deduction under section 32-AB of the Act."

Situated thus, the above question has been referred at the instance of the Revenue by the Tribunal. Hence, the present reference.

We have heard Mr. R.K. Joshi, learned counsel appearing on behalf of the assessee, and Mr.U. Bhuyan, learned junior standing counsel appearing on behalf of the Revenue.

Section 32-AB of the Act which is relevant for the purpose of answering the question may be quoted thus: 32-AB. (1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the head 'Profits and gains of business or profession', has, out of such income,---

(a)deposited any amount in an account (hereafter in this section referred to as 'deposit account') maintained by him with the Development Bank before the expiry of six months from the end of the previous year or before furnishing the' return of his income, whichever is earlier; or

(b)utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a)

in accordance with, and for the purposes specified . in, a scheme (hereafter in this section referred to as 'the Scheme') to be framedby the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any. brought forward from earlier years is set off under section 72) of---

(i)a sum equal to the amount, or- the aggregate of the amounts, so deposited and any amount so utilised; or

(ii)a sum equal to twenty per cent. of the profits of business or profession as, computed in the accounts of the assessee audited in accordance with subsection (5). "

As per the question referred as to whether the interest and dividend received by the assessee-company can be added in the total income in the manner prescribed under section 32-AB of the Act. In order to invoke the provision of section 32-AB of the Act the interest and dividend must be out of the income of the assessee tinder the head "Profit and gains of business or profession".

Mr. Joshi submits that while determining the income under the head "Profits and gains of business or profession", the provisions of subsection (3) of section 32-AB of the Act should also be considered. He submits that the Tribunal after having considered that aspect of the matter held that interest and dividend in the facts and circumstances of the case ought to be included for allowing deduction under section 32-AB of the Act. Mr. Bhuyan on the other hand, submits before us that for the purpose of answering the question it is to be seen whether the income is calculated under the head "Profits and gains of business or profession". Mr. Bhuyan also submits that if the interest and dividend do not come from the profits and gains of business or profession in that case the same shall not be added to the income of the assessee for the purpose of deduction of allowance under section 32-AB of the Act. Mr. Joshi, on the other hand, submits that in order to come to a proper calculation the provisions of subsection (3) of section 32-AB of the Act is relevant. We are of the view that we cannot answer that question because there is no such question whether the income is calculated rightly or wrongly. We are required to answer whether under the facts and circumstances of the case the interest and dividend received by the assessee company is from the investment made out of business income. The Tribunal went wrong in holding that this should be included by giving the benefits of section 32-AB of the Act.

In view of the above, we answer the question in the negative in favour of the Revenue and against the assessee.

A copy of this judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the Income-tax Appellate Tribunal.

M.B.A./1418/FC Reference answered.