2018 (6) TMI 1605 - HC - Income Tax

Tax Treatment of Interest Income from Surplus Funds in Tea Business

The High Court of Calcutta considered whether interest income from the temporary investment of surplus borrowed funds for a tea business falls under Rule ... Interest income relatable to the tea business - assessment as income from other sources - Whether the interest income derived from temporary investment of surplus borrowed funds for the business of growing and manufacturing of tea, would fall within the scope of Rule 8 of the Income Tax Rules, 1962? - HELD THAT:- Appellate Tribunal noticed the previous view of this Court in favour of the assessee in the judgment reported in Eveready Industries India Ltd. vs. CIT [2009 (12) TMI 226 - CALCUTTA HIGH COURT] but was of the opinion that in view of the Supreme Court dictum in the judgment reported in Pandian Chemicals Ltd. vs. CIT [2003 (4) TMI 3 - SUPREME COURT] the judgment in Eveready Industries India Ltd. was no longer good law. However, in a more recent judgment in CIT vs. Meghalaya Steels Ltd. [2016 (3) TMI 375 - SUPREME COURT] the Supreme Court restricted the operation of the Rule in Pandian Chemicals Ltd. and expressly approved, inter alia, the judgment of this Court in Merinoply and Chemicals Ltd. [1993 (8) TMI 29 - CALCUTTA HIGH COURT] on the construction of Section 80-IB and Section 80-IC of the Income Tax Act, 1961. The Revenue is represented and accepts the legal position as evident from the judgment in Meghalaya Steels Ltd. Accordingly, the judgment and order impugned is set aside on the basis of the Supreme Court judgment in Meghalaya Steels Ltd. and the order of the Commissioner (Appeals) passed on April 24, 2010 is restored on such ground Issues Involved:Whether interest income from temporary investment of surplus borrowed funds for tea business falls under Rule 8 of Income Tax Rules, 1962.Analysis:The High Court of Calcutta addressed the legal question of whether interest income derived from the temporary investment of surplus borrowed funds for the business of growing and manufacturing tea would fall within the scope of Rule 8 of the Income Tax Rules, 1962. The Revenue contended that the interest income should be considered as income from other sources rather than being related to the tea business of the assessee. The Appellate Tribunal referred to previous judgments, including one in favor of the assessee reported at 323 ITR 312 (Eveready Industries India Ltd. vs. CIT), but noted a Supreme Court dictum in the judgment reported at 262 ITR 278 (Pandian Chemicals Ltd. vs. CIT), which impacted the validity of the earlier judgment.In a subsequent Supreme Court judgment reported at 383 ITR 217 (CIT vs. Meghalaya Steels Ltd.), the Court restricted the application of the rule from the Pandian Chemicals Ltd. case and explicitly approved the judgment of the Calcutta High Court in Merinoply and Chemicals Ltd. (209 ITR 508) concerning the interpretation of Section 80-IB and Section 80-IC of the Income Tax Act, 1961. The Revenue, represented in the case, accepted the legal position as per the Meghalaya Steels Ltd. judgment.Consequently, the High Court set aside the judgment and order dated February 15, 2013, based on the Supreme Court's ruling in Meghalaya Steels Ltd. and restored the order of the Commissioner (Appeals) issued on April 24, 2010, on the grounds discussed. The appeal and related applications were disposed of, with no order as to costs.