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of <h1>High Court rules on interest income taxation, emphasizing direct nexus for exclusion</h1> <h3>The Commissioner of Income Tax, Panaji, Goa. Versus V.S. Dempo & Co. Pvt. Ltd.,</h3> The Commissioner of Income Tax, Panaji, Goa. Versus V.S. Dempo & Co. Pvt. Ltd., - TMI Issues involved:Interpretation of substantial question of law regarding the exclusion of interest income in taxation.Analysis:The judgment by the High Court of Bombay involved the interpretation of a substantial question of law related to the exclusion of interest income in taxation. The appeal was admitted along with other Tax Appeals, and common substantial questions of law were framed. However, during the hearing, it was established that the only substantial question of law to be considered was whether the ITAT had erred in referring the issue to the file of A.O. to exclude 90% of 'net' interest income exceeding interest received or paid, provided there is a direct nexus between interest earned and paid. The crucial aspect was establishing that all interest income, except the interest on income tax, forms part of the business profits and not income from other sources.Both the learned counsels for the appellant and respondent agreed that the issue raised in the appeal was covered by a judgment of the Apex Court in the case of 'ACG Associated Capsules Pvt. Ltd. Vs. CIT'. The judgment in this case was reported in (2012) 343 ITR (SC) 89 and was in favor of the respondent-assessee. Consequently, the substantial question of law was answered in the negative, meaning in favor of the assessee and against the revenue.As a result of the interpretation and application of the law as per the precedent set by the Apex Court, the appeal was dismissed by the High Court of Bombay. The judgment highlighted the importance of establishing a direct nexus between interest earned and paid to determine the exclusion of interest income in taxation, ensuring that all interest income, except that on income tax, is considered part of the business profits and not income from other sources.
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