2015 (7) TMI 13 - HC - Income Tax

High Court rules interest income classification for tax deduction not rectifiable under Section 154

The Commissiner of Income Tax, The Deputy Commissioner of Income Tax Versus M/s Crane Software Internaitonal Ltd

The High Court held that the classification of interest income from fixed deposits for deduction under Section 80HHE of the Income Tax Act was debatable ... Rectification of mistake - interest income earned from fixed deposits which was to fall within the head 'Income from Business' or 'Income from Other Sources'- Held that:- Fixed Deposits from which the interest had been earned, has been given as security for Term Loans and Overdrafts in appellant’s business and payment of interest on such Overdrafts and Term Loans far exceeds the receipt of interest received on Fixed Deposits. Appellate Commissioner having concluded that the issue involved in the case was contentious one, annulled the order passed by the Assessing Authority under Section 154 of the Income Tax Act, 1961. Said order of Appellate Commissioner is confirmed by the Tribunal. No ground to interfere in the impugned order, inasmuch as, the question as to whether the interest received on Fixed Deposits kept apart for business purposes falls within the business income or income from other sources is debatable point. Such debatable point is beyond the scope of Section 154 of the Income Tax Act, 1961. At an earlier point of time, the Assessing Officer had taken one particular view, since two views were possible. Hence, this is not the case wherein the Authority would have exercised power under Section 154 of the Income Tax Act, 1961. Hence, appeal stands dismissed. Accordingly, substantial question of law is answered against the revenue. Issues:1. Classification of interest income from fixed deposits for deduction u/s 80HHE.2. Validity of proceedings under Section 154 of the Income Tax Act, 1961.Analysis:1. The first substantial question of law pertains to the classification of interest income earned from fixed deposits for the purpose of deduction under Section 80HHE of the Income Tax Act. The revenue contended that the interest income, being from other sources, should be reduced from the business profit to calculate the deduction under Section 80HHE. The revenue initiated proceedings under Section 154 of the Act to rectify the alleged excess allowance of deduction. However, the Appellate Commissioner and the Tribunal held that the interest earned on fixed deposits, utilized as security for business loans, is a debatable issue. The Appellate Commissioner set aside the order passed under Section 154, emphasizing the contentious nature of the matter. The High Court concurred, stating that the question of whether interest from fixed deposits falls under business income or other sources is debatable and not suitable for rectification under Section 154. Consequently, the appeal by the revenue was dismissed, affirming the decision of the lower authorities.2. The second substantial question of law addressed the validity of the proceedings initiated under Section 154 of the Income Tax Act, 1961. The High Court noted that the issue of interest income classification was contentious and beyond the scope of Section 154 rectification. The Court emphasized that since the Assessing Officer had taken one view initially, and multiple interpretations were possible, it was not a scenario warranting rectification under Section 154. Therefore, the High Court upheld the decisions of the Appellate Commissioner and the Tribunal, ultimately dismissing the appeal by the revenue. The judgment referenced a precedent set by the Apex Court in a similar case, further solidifying the position against the revenue on this matter.