|CORAM:||B. P. Jain (AM), George George K (JM)|
|CATCH WORDS:||derived from the undertaking|
|DATE:||March 1, 2016 (Date of pronouncement)|
|DATE:||April 18, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 80-IB(7): Amounts by way of rent and other misc items, though shown as "other income" in the books, constitutes "key revenue category" as per ICAI Guidelines and are "derived" from the business of the hotel|
Thus it can be seen from the above that, rent received by the assessee of Rs.180,000/- from Heritage Shop which represents rental income from Curio Shop and of Rs.120,000/- for the space and amenities given to Kumarakom Water Transport Pvt. Ltd. will fall within the key revenue generation category of ‘Space Rentals’ and ‘Arcade revenue’ and ‘Housekeeping bill’ for a hotel industry. Revenue from staff mess of Rs.7,139/- will also fall within the key revenue generation category of ‘Food and Beverages’ for a hotel industry. Revenue from staff telephone of R.90,048/- will fall within the key revenue category of ‘Communication revenue (both telephone & internet)’ as per ICAI guidelines. Income from club cultural program/DJ of Rs.475,216/- will fall within the key revenue generation category of Club use revenue. Further the sale of used packing materials, recovery of material damage from staff etc. will fall within the key revenue category of ‘Disposal of empties/sale of scrap’ as per the ICAI guidelines. Thus it can be seen that the other income earned by the assessee company would fall within the ambit of key revenue generating activity in case of a hotel industry and, accordingly, has a direct nexus with the hotel business of the undertaking.
(ii) The Assessing Officer has disallowed the deduction u/s. 80-IB(7)(a) of the Act towards ‘other income’ on the contention that, the assessee in the books of account has termed it as “Other Income” and, accordingly, the same is not derived from the business of the assessee. The Hon’ble Supreme Court of India in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (82 ITR 363) has held that, “Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of its right nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter.” In view of judgment of Hon’ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (supra), it is very clear that the assessee would be entitled to eligible deduction, irrespective of the manner in which the entries in the books of account are maintained.
(iii) The High Court of Madras in the case of Fenner (India) Ltd. vs. CIT (125 Taxman 386) has held that,”In the industrial undertaking in the manufacture of V-belts, oil seals, O-rings and rubber moulded products, certain scrap materials resulted, which have a saleable value. To say that the scrap materials had no direct link or nexus with the industrial undertaking cannot at all be expected to commend acceptance, especially, on the facts and in the circumstances of the case. In this view of the matter, we are of the view that profits and gains from the sale of scrap materials are eligible for deduction in an amount equal to 20 per cent u/s. 80HH, in as much as such gains or profits are derived from the industrial undertaking and includible in the gross total income of the assessee and the question relatable to the profit on the sale of scrap is, thus, answered in favour of the assessee.” The Delhi High Court in the case of CIT vs. Sadhu Forging Ltd. (11 taxmann.com 322) has held that, ‘Keeping in view the activities of the assessee in giving heat treatment for which it had earned labour charges and job-work charges, it can thus be said that the appellant had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. These receipts cannot be said to be independent income of the manufacturing activities of the undertakings of the assessee and thus could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction u/s. 80-IB. These were gains derived from industrial undertakings and so entitled for the purpose of computing deduction u/s. 80-IB. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing deducting u/s. 80-IB.’’