NEW DELHI, MAR 17, 2011: THE issue before the Bench is - Whether reimbursement of expenses paid to a captive unit as idle period charges can be treated as receipt from industrial undertaking for the purpose of Sec 80IB benefits. NO is the verdict.

Facts of the case

Assessee had entered into an agreement with M/s Hindustan Liver Limited (HLL) for manufacturing some products on behalf of HLL. As per this agreement the HLL agreed to pay certain sum for the idle period during which no order would be placed by it. Assessee termed this amount as standing charges and claimed deduction under section 80-IB. AO denied the claim drawing analogy from the decision of Apex Court in the case of Liberty (2009-TIOL-100-SC-IT). CIT(A) affirmed the order of the AO. Before Tribunal, the AR of the assessee argued that standing charges were directly proportional to selling price and production and hence available for deduction of section 80-IB.

After hearing the parties the ITAT held that,

++ the contention of the assessee is that standing charges received are in the nature of first degree income and, therefore, in view of decision of Supreme Court in the case of Liberty India the assessee is eligible for deduction under section 80-IC of the Act. There is no dispute that the assessee is eligible for deduction under section 80-IC. The only dispute is whether the standing charges have been derived from any business referred to in sub section (2) of section 80-IC;

++ in the case of assessee, the standing charges have been received as idle charges including return on capital. They represent the reimbursement of certain expenses which cannot be treated as derived from the manufacturing of or production of a article or thing. Therefore, the standing charges which are received by the assessee for compensation on account of idle charges cannot be treated as income derived from industrial undertaking from manufacture or production of a article or thing on simple reason that they are reimbursement of expenses, which the assessee has to incur being a captive unit of HLL and could not manufacture the products for others.

Assessee's appeal dismissed

(See 2011-TIOL-165-ITAT-DEL in 'Income Tax')