Solvents and Chemicals, Cochin v. DCIT, Ernakulam

ITA 109/COCH/2010 | 2002-2003
Pronouncement Date: 29-07-2011

Appeal Details

RSA Number 10921914 RSA 2010
Assessee PAN AAKFS1735J
Bench Cochin
Appeal Number ITA 109/COCH/2010
Duration Of Justice 1 year(s) 5 month(s) 13 day(s)
Appellant Solvents and Chemicals, Cochin
Respondent DCIT, Ernakulam
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 29-07-2011
Assessment Year 2002-2003
Appeal Filed On 15-02-2010
Judgment Text
ITA NO. 109/COCH/2010 1 IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY AR ORA AM I.T.A. NO. 109/COCH/2010 ASSESSMENT YEAR:2002-03 M/S. SOLVENTS AND CHEMICALS GROUND FLOOR MARIA BUILDING 41/2470A TOWN RAILWAY STATION ROAD (NORTH) NEAR ESI HOSPITAL ERNAKULAM. [PAN: AAKFS 1735J] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-2(2) ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI K.NITHYANANDA KAMATH FCA-AR REVENUE BY SHRI S.R.SENAPATI SR. DR O R D E R PER SANJAY ARORA AM: THIS IS AN APPEAL BY THE ASSESSEE ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-II KOCHI (CIT(A) FOR SHO RT) DATED 30.11.2009; THE ASSESSEE HAVING CONTESTED ITS ASSESSMENT U/S. 143(3) READ WI TH S. 147 OF THE INCOME-TAX ACT 1961 ('THE ACT' HEREINAFTER) DATED 19.9.2007 FOR THE AS SESSMENT YEAR (A.Y.) 2002-03. THOUGH THE APPEAL RAISES SEVERAL GROUNDS IT IN EFFECT R AISES PRINCIPALLY TWO ISSUES EACH OF WHICH WE SHALL TAKE UP IN SERIATIM. 2. THE FIRST ISSUE AGITATED BY THE ASSESSEE PER GR OUNDS 2(A) TO (C) IS THE CHALLENGE TO THE RE-OPENING OF ITS ASSESSMENT SUBSEQUENT TO THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DATED 27.12.2004. THE BASIS OF THE CHALLENGE I S THAT THE SAME IS OCCASIONED ONLY BY A CHANGE OF OPINION BY THE ASSESSING OFFICER (AO); THE ASSESSMENT HAVING BEEN COMPLETED IN THE FIRST INSTANCE U/S. 143(3) OF THE ACT BY EXAMINING ALL THE RELEVANT ASPECTS; THE `PROFIT AND LOSS ACCOUNT AS WELL AS T HE `TAX AUDIT REPORT U/S. 44AB OF THE ITA NO. 109/COCH/2010 2 ACT FILED ALONG WITH THE RETURN OF INCOME DULY DI SCLOSING BOTH THE INTEREST RECEIVED FROM THE BANK AS WELL AS THE QUANTUM OF REMUNERATIO N ALLOWED TO THE PARTNERS I.E. THE TWO FACTS WHICH CONSTITUTE THE BASIS OF THE RE-OPEN ING OF THE ASSESSMENT. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. WE FIND NO SUBSTANCE IN THE ASSESSEES CLAIM. THERE IS NO WHI SPER EITHER OF THE INTEREST INCOME WHICH IS ON BANK DEPOSITS CREDITED TO THE PROFIT A ND LOSS ACCOUNT OF THE ASSESSEE-FIRM FOR THE YEAR AT ` 4 71 612/- OR THE HEAD OF INCOME UNDER WHICH IT I S LIABLE TO BE ASSESSED UNDER THE ACT IN THE ORIGINAL ASSESSMENT ORDER (CO PY ON RECORD). THE SAME HAS CLEARLY ESCAPED THE ATTENTION OF THE AO WHILE MAKING THE AS SESSMENT SO THAT THERE HAS BEEN NO EXPRESSION OF ANY OPINION IN THE MATTER FOR THE AS SESSEE TO CONTEND OF A CHANGE OF OPINION. EVEN AS OBSERVED BY THE BENCH DURING THE H EARING THE ASSESSMENT STANDS RE- OPENED WITHIN FOUR YEARS OF THE COMMENCEMENT OF THE RELEVANT ASSESSMENT YEAR SO THAT THE ASSESSEES INSISTENCE ON PROPER DISCLOSURE WOUL D NOT BE OF ANY RELEVANCE. THE DECISION IN THE CASE OF S.P. EQUIPMENTS & SERVICES V. CIT (ASSTT.) 128 TTJ (JP) 68 RELIED UPON BY THE ASSESSEE (WITH REGARD TO THE ISSUE ARIS ING ON MERITS) UPHOLDING THE REOPENING UNDER LIKE CIRCUMSTANCES IS ALSO FULLY APPLICABLE TO THE ASSESSEES CASE. SECONDLY WE FIND THAT THERE IS ANOTHER GROUND FOR REOPENING OF THE A SSESSMENT WHICH STANDS STATED AT PARA 2 OF THE IMPUGNED ASSESSMENT ORDER AND HAS LED TO A DISALLOWANCE U/S. 36(1)(III) AT ` 20 545/- I.E. AT THE SAME AMOUNT AS STATED IN THE REASON. THE SAID DISALLOWANCE HAS NOT BEEN AGITATED BY THE ASSESSEE EITHER BEFORE THE FIR ST APPELLATE AUTHORITY OR BEFORE US I.E. STANDS ACCEPTED. AS SUCH ITS CHALLENGING THE RE-O PENING IS WITHOUT MERIT. THE ASSESSEE FAILS ON ITS GROUND NO. 2. 4. THE SECOND AND THE PRINCIPAL ISSUE PROJECTED PE R GROUND NOS. 3(A) TO 3(E) 4 & 5 (OF THE GROUNDS OF APPEAL) RELATES TO THE DISALLOWA NCE OF ` 1 88 644/- IN RESPECT OF EXCESS REMUNERATION TO THE WORKING PARTNERS EFFECTED U/S. 40(B)(V) OF THE ACT. THE SAID DISALLOWANCE HAS BEEN WORKED OUT BY LIMITING THE AL LOWANCE IN ITS RESPECT W.R.T. THE `BOOK PROFIT IN TERMS OF EXPLANATION 3 TO S. 40(B)(V) RECKONED BY EXCLUDING THE INCOME B Y WAY INTEREST ON BANK DEPOSITS ON THE GROUND THAT T HE SAME IS ASSESSABLE UNDER THE HEAD ITA NO. 109/COCH/2010 3 INCOME FROM OTHER SOURCES AND THUS NOT LIABLE T O BE INCLUDED AS A PROFIT OF THE BUSINESS ON WHICH THE QUANTUM OF DEDUCTION QUA REMUNERATION TO THE WORKING PARTNER/S IS TO BE BASED. WHILE THE AO HAS RELIED ON THE DEC ISION IN THE CASE OF CIT VS. SOUTH INDIA SHIPPING CORPORATION LTD. (1999) 240 ITR 24 (MAD.) THE LD. CIT(A) HAS FURTH ER RELIED ON THE DECISIONS BY THE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS. JOSE THOMAS 253 ITR 553 (KER.) AND COLLIS LINES PVT. LTD. VS. CIT 135 ITR 390 (KER.) STATING OF THE SAME AS REPRESENTING THE CONSISTENT VIEW BY THE SAID COURT. THE ASSESSEES STAND IS THAT WHAT IS RELEVANT IS THE MANNER IN WHICH THE INCOME IS DERIV ED AND NOT THE FACT THAT THE ASSESSEE IS ENGAGED IN BUSINESS OR PROFESSION. AGGRIEVED THE ASSESSEE IS IN APPEAL. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD INCLUDING THE HEARING NOTES AS WELL AS THE CASE LAW CITED BY THE ASSESSEE PER ITS GROUNDS OF APPEAL AS ALSO PER ITS SEPARATE PAPER-BOOK. 5.1 THOUGH THE ASSESSEE HAS RAISED ALTERNATIVE CONTENTIONS AS WELL WE SHALL PROCEED BY EXAMINING THE PRINCIPAL ISSUE FIRST. THE PRIMARY F ACTS ARE RELEVANT AND BEAR MENTION. THE ASSESSEE IS A WHOLESALE DEALER IN SOLVENTS AND CHEM ICALS AVAILING A LOAN OF ` 1.20 CRORES FROM ITS BANK FOR THE PURPOSE DURING THE RELEVANT Y EAR. THE BANK DEPOSITS ON WHICH THE IMPUGNED INTEREST STANDS EARNED ARE ONLY TOWARD MA RGIN MONEY FOR THE ISSUE OF BANK GUARANTEE/S IN FAVOUR OF ITS PRINCIPAL SUPPLIERS I .E. THE HINDUSTAN OIL CORPORATION LTD. (HOCL) AND KOCHI REFINERIES LTD. (KRL) BY ITS BANK ER STATE BANK OF INDIA; THE TOTAL AMOUNT OF BANK GUARANTEES ISSUED AND OUTSTANDING D URING THE YEAR BEING TO THE TUNE OF ` 1.95 CRORES. THE SUPPLIERS AS EXPLAINED BY THE AS SESSEE EXTEND CREDIT (FOR ONE MONTH) ONLY ON THE CONDITION OF BEING GUARANTEED THE PAYME NT ON THE EXPIRY OF THE DEFINED PERIOD TOWARD WHICH THE FUNDS ARE PLACED IN BANK D EPOSITS BY WAY OF MARGIN MONEY @ 25% OF THE BANK GUARANTEE/S. THESE FACT ARE NOT DI SPUTED SO THAT WE SHALL TAKE THEM AS GIVEN FOR THE PURPOSE OF OUR DELIBERATION. 5.2 WITH REGARD TO THE LAW IN THE MATTER WE MAY REFER TO AMONG OTHERS THE DECISION BY THE APEX COURT IN THE CASE OF CIT VS. GOVINDA CHOUDHURY & SONS (1994) 203 ITR 881 ITA NO. 109/COCH/2010 4 (SC) SINCE AFFIRMED BY THE SAID COURT IN THE CASE OF CIT V. B.N. AGGARWALA & CO . (2003) 259 ITR 754 (SC). IN THE FACTS OF THE SAID CASE T HERE AROSE A DISPUTE BETWEEN THE ASSESSEE A GOVERNMENT CONTRACTOR AND THE STATE GO VERNMENT WITH REGARD TO THE PAYMENTS UNDER THE CONTRACT AND WHICH WERE REFERRED TO ARBI TRATION. THE ASSESSEE RECEIVED CERTAIN AMOUNTS UNDER ARBITRATION AWARD AND WHICH INCLUDED INTEREST FOR THE DELAY IN THE PAYMENT DUE TO IT. THE QUESTION OF THE HEAD OF INC OME UNDER WHICH THE SAID INTEREST WAS LIABLE TO BE ASSESSED I.E. AS `BUSINESS INCOME O R `INCOME FROM OTHER SOURCES AROSE FOR CONSIDERATION. THE APEX COURT CLARIFIED THAT THERE WAS NO RULE THAT THE INTEREST HAD TO BE ASSESSED ONLY UNDER THE RESIDUARY HEAD INCOME FROM OTHER SOURCES AND WHICH WOULD BE SO ONLY WHERE IT COULD NOT BE BROUGHT WITHIN ONE OF THE SEVERAL SPECIFIC HEADS OF CHARGE. THAT IS THE QUESTION OF ITS ASSESSABILITY UNDER ON E OR THE OTHER HEADS OF INCOME IS TO BE DETERMINED ON THE BASIS OF THE SPECIFIC FACTS ATTEN DING EACH CASE AND NO OMNIBUS OR STANDARD RULE COULD BE SAID TO OPERATE. IT WAS FUR THER HELD THAT THE INTEREST PAYABLE TO THE RESPONDENT PARTOOK THE SAME CHARACTER AS THE RECEIP T FOR PAYMENT OF WHICH IT WAS OTHERWISE ENTITLED UNDER THE CONTRACT AND WHICH PA YMENT HAD BEEN DELAYED AS A RESULT OF THE DISPUTE BETWEEN THE PARTIES. THE INTEREST AWAR DED COULD NOT BE SEPARATED FROM THE OTHER AMOUNTS GRANTED TO THE RESPONDENT UNDER THE A WARD AND TREATED AS `INCOME FROM OTHER SOURCES. THE SUBSEQUENT DECISIONS BY THE AP EX COURT IN THE CASE OF CIT VS. BOKARO STEEL LTD . (1999) 236 ITR 315 (SC) AND CIT VS. KARNAL COOPERATIVE SUGAR MILL LTD. (2000) 243 ITR 2 (SC) INTER ALIA FURTHER CONFIRM THIS VIEW. IN BOTH THE CASES TH E INTEREST INCOME WAS FOUND AS DIRECTLY CONNECTED AND INCIDENTAL TO THE CONSTRUCTION OF THE PLANT AND THUS CONSIDERED AS A CREDIT TOWARD ACQU ISITION OR THE SETTING UP OF THE PLANT AND MACHINERY (OR OTHER CAPITAL ASSET) AND ACCORDINGLY ONLY A CAPITAL RECEIPT WHICH WOULD GO TO REDUCE THE COST OF THE RELEVANT ASSET. IN FA CT THE FACTS IN THE CASE OF CIT VS. SOUTH INDIA SHIPPING CORPORATION LTD. (SUPRA) RELIED UPON BY THE REVENUE WOULD ALSO BEA R OUT THE SAME IN-AS-MUCH AS THE SAME FOLLOWS THE APPLICA TION OF THE DECISION BY THE APEX COURT ITSELF IN THE CASE OF TUTICORIN ALKALIS CHEMICALS AND FERTILIZERS LTD. VS . CIT (1997) 227 ITR 172 (SC). IN THE SUBSEQUENT DECISION CITED SUP RA I.E. CIT VS. BOKARO STEEL LTD AND CIT VS. KARNAL COOPERATIVE SUGAR MILL LTD THE OVERDRAFT FACILITY WAS AVAILED ON THE SECURITY OF SHORT TERM BANK DEPOSITS AND WHICH FUN DS WERE USED FOR BUSINESS PURPOSES. IT ITA NO. 109/COCH/2010 5 WAS UNDER THESE CIRCUMSTANCES THAT IT WAS HELD THAT THE INTEREST ON THE BANK DEPOSITS WOULD NOT BE ASSESSABLE AS BUSINESS INCOME BUT ONLY AS INCOME FROM OTHER SOURCES WHILE THE ASSESSEE WOULD GET FULL DEDUCTION U/S. 36(1)(I II) ON THE INTEREST ON THE OVERDRAFT ACCOUNT. THE BANK DEPOSITS IT MAY BE APPRECIAT ED WERE NOWHERE CONNECTED WITH THE ASSESSEES BUSINESS AND ONLY REPRESENTED PARKING O F FUNDS DEEMED SURPLUS FOR THE TIME BEING ON A SHORT TERM BASIS. THAT THESE CONSTITUT ED THE SECURITY FOR AVAILING OF OVERDRAFT FACILITY FROM THE BANK AVAILED AND UTILISED FOR BU SINESS PURPOSES WAS AS ALSO POINTED OUT BY THE HONBLE COURT A DIFFERENT MATTER ALTOGETHER . IT WAS ON THIS BASIS THAT THE INTEREST ON OVERDRAFT WAS DISALLOWED FOR BEING SET OFF AGAINST THE BANK INTEREST INCOME HAVING NOT BEEN INCURRED FOR EARNING THE SAME. THE SAID INTER EST WOULD HOWEVER BEING ON A BORROWING OF THE BUSINESS STAND TO BE ALLOWED AS B USINESS DEDUCTION U/S. 36(1)(III). THE BANK DEPOSITS FORMED THE SECURITY FOR THE AVAILMENT OF BORROWING FROM THE BANK AND THUS BY ITSELF DO NOT FORM PART OF THE BUSINESS OR TRADE . THE SAME PREMISES INFORMED THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. JOSE THOMAS (SUPRA) WHICH WAS ALSO IN THE CONTEXT OF THE BANK DEPOSITS HELD AS COLLATERAL SECURITY FOR BANK BORROWING; IT REVERSING THE DECISION BY THE TR IBUNAL IN THE MATTER HOLDING THAT IF AGRICULTURAL LAND STOOD OFFERED AS A COLLATERAL SEC URITY GOING BY THE TRIBUNALS LOGIC THE AGRICULTURAL INCOME THERE-FROM WOULD BE ASSESSABLE AS BUSINESS INCOME! AGAIN THE DECISION IN THE CASE OF COLLIS LINES PVT. LTD. VS. CIT (SUPRA) IS WITH REFERENCE TO THE BANK DEPOSITS REPRESENTING INVESTMENT OF SURPLUS FUNDS LYING IDLE AND THUS KEPT IN THE FORM OF DEPOSITS WITH THE BANK. 5.3 THE BANK DEPOSITS IN THE FACTS OF PRESENT CASE TO THE CONTRARY WERE NECESSITATED ONLY FOR THE AVAILMENT OF CREDIT FROM THE SUPPLIER S WHO REFUSED TO EXTEND TRADE CREDIT AND THUS ASSUME ANY CREDIT RISK AGAINST SUPPLIES TO THE ASSESSEE EXCEPT WHERE THE SAME STOOD MITIGATED BY THE ISSUE OF BANK GUARANTEE/S IN THEIR FAVOUR. THE SAID BANK DEPOSITS BEING ONLY IN COMPLIANCE OF THE TERMS OF THE AVAILM ENT OF BANK GUARANTEE A BUSINESS ARRANGEMENT - THUS CONSTITUTE A BUSINESS ASSET AS ANY OTHER. THE SAME MAKES BUSINESS SENSE AS ALSO SOUGHT TO BE EXPLAINED BY THE LD. AR DURING HEARING AS A DEPOSIT OF ` 25/- ITA NO. 109/COCH/2010 6 (SAY) ENABLES THE ASSESSEE TO AVAIL A CREDIT OF ` 100/- FROM ITS SUPPLIERS ON A CONTINUOUS BASIS WHILE EARNING IT A REASONABLE RETURN (BY WAY OF INTEREST) ON A RISK-FREE OR NEAR RISK- FREE BASIS. THE ASSESSEE RATHER THAN BEING POSSESS ED WITH SURPLUS FUNDS IS IN DEFICIT AVAILING OF A LOAN OF ` 120 LAKHS DURING THE RELEVANT YEAR. THE FACTS OF TH E INSTANT CASE ARE THUS COMPLETELY DISTINGUISHABLE FROM THAT OF THE C ASES RELIED UPON BY THE REVENUE. THE BANK DEPOSIT(S) ON WHICH INTEREST STANDS EARNED IN THE PRESENT CASE THUS ARE ONLY THE BUSINESS ASSETS OF THE ASSESSEES TRADE A ND INCOME THERE-FROM RIGHTLY ASSESSABLE AS BUSINESS INCOME. THE ASSESSEES CASE RATHER TH AN BEING COVERED AGAINST IT IS COVERED IN ITS FAVOUR BY THE DECISIONS AS IN THE CASE OF CIT V. B.N. AGGARWALA & CO . (SUPRA); TUTICORIN ALKALIS CHEMICALS AND FERTILIZERS LTD. VS . CIT (SUPRA); CIT VS. BOKARO STEEL LTD (SUPRA); CIT VS. KARNAL COOPERATIVE SUGAR MILL LTD. (SUPRA) WHERE THE APEX COURT HAS TIME AND AGAIN CONFIRMED THAT IT IS THE PURPOSE OR THE PROXIMITY TO THE PURPOSE WHICH WOULD DETERMINE THE CHARACTER OF THE ASSET AND THU S THAT OF THE INCOME ARISING THERE-FROM AND CONSEQUENTLY ITS ASSESSABILITY UNDER THE ACT GOING ON TO HOLD THAT WHERE THE AMOUNT WAS DEPOSITED IN THE BANK TO OBTAIN A LETTER OF CRE DIT FOR PURCHASE OF A CAPITAL ASSET (MACHINERY) THE INTEREST THEREON WOULD ONLY BE A C APITAL RECEIPT WHICH SHALL GO TO REDUCE THE COST OF THE RELEVANT CAPITAL ASSET. THE SAID DE CISIONS IN OUR VIEW FULL GOVERN THE PRESENT CASE AND THE REVENUE HAS MISAPPLIED THE DE CISIONS BY THE HONBLE JURISDICTIONAL HIGH COURT. WE ACCORDINGLY HOLD THE IMPUGNED INTE REST INCOME OF ` 471612/- AS LIABLE TO BE ASSESSED AS BUSINESS INCOME UNDER CHAPTER IV-D O F THE ACT. ACCORDINGLY IT WOULD BE ENTITLED TO DEDUCTION QUA REMUNERATION ALLOWED TO WORKING PARTNER/S BY CONSI DERING THE SAID INCOME AS PART OF THE `BOOK PROFIT UNDER EXPLANATION 3 TO S. 40(B)(V). WE DECIDE ACCORDINGLY. 5.4 CONTINUING FURTHER GROUND NO. 4 REPRESENTS THE ALTERNATIVE PLEA RAISED BY THE ASSESSEE RELYING ON THE DECISION BY THE TRIBUNAL I N THE CASE OF S.P. EQUIPMENTS & SERVICES V. CIT (ASSTT.) (SUPRA) AND CIT (ASSTT.) V. SETH BROTHERS 99 TTJ (RAJKOT) 189 TO THE EFFECT THAT EVEN IF THE SAID INTEREST WAS TO BE CONSIDERED AS ASSESSABLE UNDER CHAPTER IV-F OF THE ACT I.E. AS INCOME FROM OTHER SOURCES THE SAME WOULD STILL QUALIFY TO BE ITA NO. 109/COCH/2010 7 CONSIDERED AS A PART OF THE `BOOK PROFIT BEING WI TH REFERENCE TO THE BOOKS OF ACCOUNTS WHICH THE AO CANNOT DISTURB SO THAT REMUNERATION T O THE PARTNERS WOULD STAND TO BE ALLOWED ON ITS BASIS. THE MOOT QUESTION HOWEVER T HAT WOULD ARISE IN THIS REGARD AND ONLY AS A DIRECT COROLLARY TO THE FOREGOING DISCUSS ION IS WHETHER A DEDUCTION IN RESPECT OF BUSINESS EXPENDITURE AS REMUNERATION ALLOWED BY A FIRM TO ITS WORKING PARTNER/S WHICH IS ALLOWABLE ONLY U/S. 37(1) OF THE ACT COULD BE A LLOWED AGAINST INCOME THAT IS ADMITTEDLY NOT ASSESSABLE UNDER CHAPTER IV-D BUT UNDER ANY OT HER HEAD OF INCOME INSTEAD AS (SAY) `INCOME FROM OTHER SOURCES [CHAPTER IV-F]. THIS WO ULD ARISE IN DIRECT CONSEQUENCE OF THE ARGUMENT ADVANCED THAT THE TERM `BOOK PROFIT U NDER EXPLANATION 3 TO S. 40(B)(V) COULD INCLUDE INCOME WHICH MAY NOT BE ASSESSABLE U/ C. IV-D; THE ONLY QUALIFICATION FOR THE SAME BEING THAT IT MUST FIND INCLUSION IN THE F IRMS `PROFIT AND LOSS ACCOUNT FOR THE RELEVANT YEAR. AS WOULD BE APPARENT THE SAME WOULD GO AGAINST THE SCHEME OF THE ACT AND THE ANSWER TO THE QUESTION POSED ARISING CONSE QUENTIALLY COULD ONLY BE IN THE NEGATIVE. THE CASE LAW IN THE MATTER IS LEGION AND THE DECISIONS REFERRED TO IN THE FOREGOING ANALYSIS WOULD ALSO SUPPORT THE SAME APA RT FROM BEING SUBJECT TO THE SPECIFIC PROVISION OF SEC. 29 OF THE ACT WHICH SPECIFICALLY MANDATES THAT THE INCOME ASSESSABLE U/S. 28 IS TO COMPUTED BY ALLOWING DEDUCTIONS AS EX IGIBLE U/SS. 30 TO 43D. WHAT IS THE MEANING OF AND PURPOSE IN CLASSIFYING THE INCOME UN DER DEFINED HEADS OF INCOME IT MAY BE ASKED IF ANY EXPENDITURE COULD BE ALLOWED AGAIN ST ANY INCOME; THE ENTIRE INCOME COULD WELL BE BROUGHT TO TAX UNDER A SINGLE HEAD? ANY DEDUCTION IT MAY BE APPRECIATED IS ONLY TOWARD DETERMINING THE INCOME ASSESSABLE UN DER A PARTICULAR HEAD OF INCOME. IT IS ONLY ONCE THE ASSESSABILITY OF A PARTICULAR INCOME UNDER A PARTICULAR HEAD OF INCOME IS DETERMINED THAT THE FURTHER QUESTION OF THE PERMIS SIBLE DEDUCTION/S THERE-AGAINST IN COMPUTING THE QUANTUM THEREOF WOULD ARISE. THE RELEVANT AND THE PROPER QUESTION TO BE ASKED THEREFORE IN DETERMINING THE ISSUE AT LARGE IS NOT WHETHER THE TERM `BOOK PROFIT WOULD INCLUDE ONLY INCOME ASSESSABLE U/C. IV-D OR C OULD POSSIBLY INCLUDE OTHER INCOME/S AS WELL BUT WHETHER THE IMPUGNED INTEREST INCOME I S ASSESSABLE U/C. IV-D I.E. AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES A ND THE QUESTION POSED OR THE CONTENTION RAISED PER THE RELEVANT GROUNDS IS MISC ONCEIVED AND AMOUNTS TO PUTTING THE CART BEFORE THE HORSE . ITA NO. 109/COCH/2010 8 THE DEDUCTION QUA THE PARTNERS REMUNERATION IS BEING CLAIMED AND T HEREFORE WOULD STAND TO BE ALLOWED ONLY IN DETERMINING THE I NCOME ASSESSABLE U/C. IV-D IN WHICH CASE IT WOULD AUTOMATICALLY FALL TO BE INCLUDED IN THE `BOOK PROFIT AND THE ASSESSEE ALLOWED ITS CLAIM FOR REMUNERATION ALLOWED TO THE W ORKING PARTNER/S WITH REFERENCE THERETO - AT THE CLAIMED/EXIGIBLE AMOUNT ELSE NOT. THE CONDITION WITH REFERENCE TO `BOOK PROFIT IT MAY BE APPRECIATED DOES NOT LAY DOWN A NY QUALITATIVE TEST BUT ONLY A QUANTITATIVE ONE SO THAT THE DEDUCTION BEING IN R ESPECT OF EXPENDITURE TO PERSONS CONSTITUTING THE FIRM ITSELF IS SOUGHT TO BE REGUL ATED BY THE ACT . THE QUESTION AS TO WHETHER `BOOK PROFIT WOULD INCLUDE INCOME ASSESSAB LE UNDER HEAD OF INCOME OTHER THAN THAT ASSESSABLE CHAPTER IV-D THUS DOES NOT ARISE FOR CONSIDERATION AND THE ASSESSEES ALTERNATE GROUND (# 4) IS MISCONCEIVED AND MISDIREC TED. GROUND NO. 5 RAISES ANOTHER ALTERNATE CONTENTION I.E. OF THE IMPUGNED EXPENDITURE ON REMUNERATION TO WORKING PARTNERS BE ING NOT HIT BY S. 58 AS ALLOWABLE U/S. 57(III) SO THAT IT WOULD BE STAND TO BE ALLOWED AS A DEDUCTION EVEN IF THE INTEREST INCOME IS ASSESSABLE U/S. IV-F I.E. AS `INCOME FROM OTHE R SOURCES. THE SAID GROUND WAS NOT ARGUED BEFORE US NOR RAISED BEFORE AND CONSEQUENTL Y ADJUDICATED BY THE AUTHORITIES BELOW SO THAT CONSIDERATION OF THE SAME RAISES THE ISSUE OF ITS MAINTAINABILITY. WE HAVE IN ANY CASE ALREADY ANSWERED THE RELEVANT QUESTION I .E. THAT THE IMPUGNED INTEREST INCOME IS ASSESSABLE U/C. IV-D SO THAT THE ISSUE STANDS D ECIDED IN FAVOUR OF THE STAND TAKEN BY THE ASSESSEE. WE DECIDE ACCORDINGLY DISMISSING THE ASSESSEES ALTERNATE CLAIM/S. 6. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 29TH JULY 2011 GJ COPY TO: 1. M/S. SOLVENTS AND CHEMICALS GROUND FLOOR MARIA BUILDING 41/2470 A TOWN RAILWAY STATION ROAD (NORTH) NEAR ESI HOSPITAL ERNAKULAM - 682 018 ITA NO. 109/COCH/2010 9 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE - 2(2) ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II KOC HI. 4. THE COMMISSIONER OF INCOME-TAX KOCHI. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE.