ITAT Mumbai: Deduction of 90% lease rental income upheld, interest income treated as business income

The Appellate Tribunal ITAT, Mumbai allowed the appeal of the assessee for statistical purposes, while dismissing the revenue's appeal. The tribunal upheld the deduction of 90% of lease rental income as an independent item of income and treated interest income as business income, allowing the deduction of 90% of it. The matter concerning netting of lease rental income after depreciation was remanded back to the CIT(A) for further consideration.

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Issues:
1. Allowability of deduction under section 80HHF in relation to interest income and lease rental income from lease of IRD Boxes.

Analysis:

1. Deduction of Lease Rental Income:
The dispute revolved around the deduction of 90% of lease rental income under section 80HHF. The assessee contended that the lease rental income was an integral part of the business income as they were in the business of running TV channels and leasing out IRD Boxes. However, the CIT(A) and tribunal held that 90% of the lease rental income should be deducted as it was considered an independent item of income. The tribunal relied on the Supreme Court judgment in CIT vs K. Ravindranathan Nair to support this decision. The assessee argued for netting the lease rental income after depreciation, but the CIT(A) did not adjudicate on this aspect. Ultimately, the matter was restored back to the CIT(A) for consideration of the netting issue.

2. Treatment of Interest Income:
Regarding the deduction of 90% of interest income from the profit of business under section 80HHF, the AO initially treated the interest income as business income and deducted 90% of it. However, the CIT set aside this order and directed a fresh assessment, considering the interest income as income from other sources. The tribunal disagreed with the CIT's view and upheld the treatment of interest income as business income. In the subsequent assessment, the AO again deducted 90% of the interest income from the profit of business, which was confirmed by the CIT(A). The revenue challenged this decision, but the tribunal upheld the CIT(A)'s order, concluding that there was no infirmity in treating the interest income as business income and deducting 90% of it.

In conclusion, the appeal of the assessee was allowed for statistical purposes, while the revenue's appeal was dismissed, as per the judgment pronounced on 28.2.2011 by the Appellate Tribunal ITAT, Mumbai.

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