2007 (12) TMI 218 - HC - Income Tax

High Court affirms deduction eligibility for interest on RBI bonds & transportation charges under tax laws

The High Court upheld the decisions of lower authorities regarding the eligibility of interest on RBI bonds for deduction under section 80HHB and the ... Industrial Undertaking – deduction - . The CIT(A) reversed the order of the Assessing Officer and allowed the deduction to the assessee under section 80HHB in respect of the interest on RBI bonds as well as the deduction under section 80-IA in respect of the transportation charges received by it. The Tribunal concurred with the view taken by the CIT(A) – held that - as regards the interest on RBI bonds, this was part of the total settlement package by which the assessee was to receive Rs. 54.93 crores for the works undertaken in Iraq as a sub-contractor of the IRCON – benefit of deduction allowed u/s 80HHB - business of the assessee included not only manufacturing but all incidental activities undertaken till the delivery of the manufactured goods was effected. The benefit of the deduction to the assessee in terms of section 80-IA of the Act cannot be denied since the receipts on account of transportation are a part of its business receipts Issues:1. Eligibility of interest earned on RBI bonds for deduction under section 80HHB of the Income-tax Act, 1961.2. Correctness of allowing deduction under section 80-IA of the Act to the assessee on receipts from transportation of sleepers.Analysis:1. The case involved two appeals against orders by the Income-tax Appellate Tribunal for different assessment years but addressing the same legal questions. The first issue was whether interest earned on RBI bonds by the assessee qualified as income derived from the business of an industrial undertaking for deduction under section 80HHB. The assessee had carried out construction works in Iraq, and due to a settlement with the Indian Railway Construction Corporation, received payments including interest on RBI bonds. The Assessing Officer initially disallowed the deduction, but the Commissioner of Income-tax (Appeals) and the Tribunal allowed it. The High Court upheld this decision, stating that the interest on RBI bonds was part of the total settlement package related to the works undertaken by the assessee, and thus, was not separate income outside the business activity.2. The second issue revolved around the deduction under section 80-IA in relation to transportation charges received by the assessee for transporting sleepers to railway sites. The Assessing Officer disallowed this deduction, arguing that the transportation income did not qualify as derived from an industrial undertaking. However, the Commissioner of Income-tax (Appeals) and the Tribunal allowed the deduction, considering transportation as an incidental activity of the business. The High Court agreed with this view, emphasizing that the transportation of sleepers was part of the business activities of the assessee until delivery was completed. Therefore, the deduction under section 80-IA was justified. The High Court also rejected the argument that the facts for the assessment year 2000-01 were different, as the Tribunal had found them to be identical to the earlier assessment year, leading to the dismissal of the appeals.In conclusion, the High Court found no merit in the appeals and dismissed them, upholding the decisions of the lower authorities regarding the eligibility of interest on RBI bonds for deduction under section 80HHB and the allowance of deduction under section 80-IA for transportation charges.