2016 (12) TMI 358 - HC - Income Tax

Court allows exporter's appeal, deems interest income part of business income under Section 80HHC.

M/s. Chordia Trading Corporation Chordia Bhawan Versus The Income Tax Officer, Ward-1 (2), Jaipur

M/s. Chordia Trading Corporation Chordia Bhawan Versus The Income Tax Officer, Ward-1 (2), Jaipur - TMI Issues:1. Classification of interest income for taxation.2. Eligibility for deduction under Section 80HHC of the Income Tax Act.3. Treatment of interest received and paid in the computation of business income.4. Applicability of interest under Section 234B and interest u/s.234C of the I.T. Act.5. Observations on interest u/s.244A and rectification under Section 154 of the I.T. Act.Issue 1: Classification of Interest Income:The appellant, an exporter of precious stones, challenged the Tribunal's decision regarding the classification of interest income. The AO and the ld. CIT(A) held that the interest income lacked nexus with the business income, thus should be assessed under income from other sources. The ld. CIT(A) emphasized that the interest outgoings were related to borrowings from previous years and not for business purposes during the year under consideration. The appellant argued that interest income should be considered as part of business income under Section 80HHC of the Income Tax Act.Issue 2: Eligibility for Deduction under Section 80HHC:The appellant contended that the Supreme Court's ruling in ACG Associated Capsules (P) Ltd. vs. Commissioner of Income Tax supported their position. The court in that case clarified that only receipts included in the profits of business under the head 'Profit and Gains of Business or Profession' could be reduced under Section 80HHC. The appellant argued that since there was business income under Section 80HHC, the judgments cited by the department were not applicable.Issue 3: Treatment of Interest Received and Paid:The court examined the provisions of Section 80HHC and the explanation (baa) to determine the eligibility for deduction of interest income. Considering the arguments presented and the AO's findings, the court concluded that the appellant was entitled to net income under Section 80HHC. Consequently, the court ruled in favor of the assessee on issues related to the classification and treatment of interest income in the computation of business income.Issue 4: Applicability of Interest under Section 234B and 234C:As the court ruled in favor of the assessee on issues 1 to 3, the issues related to interest under Section 234B and 234C were deemed consequential and were not pressed by either party. Therefore, the court did not delve into the specifics of these issues.Issue 5: Observations on Interest u/s.244A and Rectification under Section 154:The court made observations regarding interest u/s.244A, stating that it cannot be withdrawn but can be rectified under Section 154 of the I.T. Act. However, since the primary issues were decided in favor of the assessee, the court did not delve further into the implications of interest u/s.244A.In conclusion, the court allowed the appeal in favor of the assessee, emphasizing the entitlement to net income under Section 80HHC and the proper classification of interest income for taxation purposes.