2015 (8) TMI 720 - HC - Income Tax

Court includes interest income in business income for deduction under section 32AB of Income Tax Act, allows relief under sections 80HHA and 80I.

The High Court upheld the Tribunal's decision to include interest income as part of the business income for computing the deduction under section 32AB of ... Exclusion of interest income for the purpose of computing the deduction u/s 32AB - Held that:- The assessee was compelled to park a part of its funds in fixed deposits under the insistence of the financial institutions. On such funds, the assessee received interest. Such income cannot be treated as income from other sources and must be seen as part of the assessee's business of manufacturing and selling of chemicals. The decision of the Apex Court in the case of Pandian Chemicals Ltd. (2003 (4) TMI 3 - SUPREME Court ) would not be applicable. In the said case, the Apex Court was interpreting the phrase 'derived from' used in section 80HH of the Act. It was in this background that the Apex Court held that the words 'derived from' must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. It was on that basis that the Apex Court held that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking. Before concluding, we may notice that clause (i) of sub-section (2) of section 32AB defines eligible business or profession to mean business or profession other than those specified in sub-clauses (a) and (b) of clause (i) of section 32AB(2). Admittedly, the present case is not in either of the exclusionary clauses. Under the circumstances, we are of the opinion that the Tribunal committed no error directing the Assessing Officer not to exclude interest income for the purpose of computing the deduction u/s 32AB of the Act - Decided against revenue. Separate relief u/s 80HHA and 80I - Whether the Appellate Tribunal is right in law and on facts in directing to allow separate relief u/s 80HHA and 80I of the Act? - Held that:- Issue is concluded against the Revenue by virtue of the judgment of the Apex Court in the case of Joint Commissioner of Income Tax v. Mandideep Eng. & Pkg. Ind. P. Ltd., (2006 (4) TMI 75 - SUPREME Court) wherein held sections 80HH and 80-I, are independent of each other and therefore a new industrial unit can claim deductions under both the sections on the gross total income independently or that deduction u/s 80-I can be taken on the reduced balance after taking into account the benefit taken under section 80HH.- Decided against revenue. Issues Involved:1. Exclusion of interest income for computing deduction under section 32AB of the Income Tax Act.2. Allowance of separate relief under sections 80HHA and 80I of the Income Tax Act.Issue 1: Exclusion of Interest Income for Computing Deduction under Section 32ABFacts:The respondent-assessee, engaged in the business of production and sale of chemicals, claimed deduction under section 32AB for the assessment years 1989-90 and 1990-91. The Assessing Officer excluded interest income from the computation of eligible business income for the deduction, treating it as income from other sources.Contentions:The assessee argued that the interest income was earned from deposits made due to the insistence of financial institutions and should be treated as business income. The Commissioner (Appeals) accepted this contention, but the Revenue challenged it before the Tribunal, which upheld the assessee's view.Judgment Analysis:The High Court examined section 32AB, which allows deductions for amounts deposited in a Development Bank or utilized for purchasing new machinery, provided the income is from eligible business. The court referred to the Kerala High Court's decision in Appollo Tyres Ltd., confirmed by the Supreme Court, stating that all business income, except those specified, qualifies for the deduction.The court also considered the Delhi High Court's judgment in Jaypee DSC Ventures Ltd., which held that interest earned from deposits made as a performance guarantee should be treated as business income. The High Court concluded that the interest income in the present case, earned due to the financial institutions' insistence, was part of the business income and not income from other sources.Conclusion:The Tribunal's decision to include the interest income as part of the business income for computing the deduction under section 32AB was upheld. The question was answered in the affirmative, against the Revenue, and in favor of the respondent-assessee.Issue 2: Allowance of Separate Relief under Sections 80HHA and 80IFacts:In Tax Appeal No.256 of 2000, the Tribunal directed the Assessing Officer to allow separate relief under sections 80HHA and 80I.Contentions:The Revenue's counsel acknowledged that the issue was settled against the Revenue by the Supreme Court's judgment in Joint Commissioner of Income Tax v. Mandideep Eng. & Pkg. Ind. P. Ltd.Judgment Analysis:The High Court noted that a similar question in another appeal was dismissed by a Division Bench. Given the Supreme Court's ruling, the court affirmed the Tribunal's decision to allow separate relief under sections 80HHA and 80I.Conclusion:The question regarding separate relief under sections 80HHA and 80I was answered in the affirmative, against the Revenue, and in favor of the respondent-assessee.Final Judgment:Both Tax Appeals were dismissed, with the questions answered in favor of the respondent-assessee and against the Revenue.