2008 (8) TMI 123 - HC - Income Tax

Court upholds assessee's exemption claim under section 10B for interest income from sister concern.

The court upheld the assessee's entitlement to claim exemption under section 10B for interest income earned from a sister concern, emphasizing that the ... Entitlement to claim exemption u/s 10B on the interest income earned from M/s Wolkem India Ltd.(sister concerrn) – assessee’s submission that income was the result of business transactions between the assessee and seller, and therefore, it clearly falls within the definition of “Profits and Gains” and therefore, the assessee was entitled to exemption under section 10B, is acceptable – revenue’s appeal are dismissed – tribunal was justified in granting exemption Issues:1. Entitlement to claim exemption under section 10B on interest income earned from a sister concern.2. Interpretation of 'Profits and Gains' under section 10B for exemption eligibility.Issue 1:The judgment involves two appeals by the Revenue concerning the entitlement of the assessee to claim exemption under section 10B on interest income earned from a sister concern, M/s Wolkem India Ltd. The first appeal arose from the invoking of revisional powers under section 263 of the Income Tax Act, where the assessing officer's order granting exemption was set aside for lack of due enquiry. The revisional authority found that the interest income could not be considered business income without proper investigation. The Tribunal, however, upheld the assessing officer's decision, emphasizing the regular business dealings between the parties. The second appeal pertained to the assessment year 1994-95, challenging the exemption granted by the tribunal based on similar grounds. The Revenue contended that interest income is chargeable under 'income from other sources' and not eligible for exemption under section 10B. The assessee argued that the income resulted from business transactions and qualified as 'Profits and Gains' under section 10B.Issue 2:The interpretation of 'Profits and Gains' under section 10B was crucial in determining the eligibility for exemption. The court analyzed the relevant provisions of the Income Tax Act to differentiate between profits and gains of business or profession and income from other sources. Section 2(24) defines 'income' to include profits and gains, while section 56 covers income from other sources. The court highlighted the distinction between these categories and emphasized that profits and gains of business or profession are a separate species of income. The court delved into the definition of 'profits and gains' from various legal perspectives, including acquisitions and pecuniary gains. Ultimately, the court concluded that the income derived from the sister concern fell within the ambit of 'Profits and Gains,' making the assessee eligible for exemption under section 10B. The court upheld the tribunal's decision and dismissed the appeals brought by the Revenue.In conclusion, the judgment clarified the entitlement to claim exemption under section 10B for interest income earned from a sister concern, emphasizing the interpretation of 'Profits and Gains' under the relevant provisions of the Income Tax Act. The court's detailed analysis highlighted the distinction between different types of income and affirmed the assessee's eligibility for exemption based on the nature of the income derived from business transactions.