Court dismisses appeal on deduction under Section 80-IC, ruling interest income not eligible

Conventional Fastners Versus Commissioner of Income Tax, Dehradun

Conventional Fastners Versus Commissioner of Income Tax, Dehradun - [2018] 403 ITR 115 (Uttarakhand) Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Deduction under Section 80-IC of the Income Tax Act, 1961
3. Distinction between "Derived From" and "Attributable To" Income
4. Treatment of Interest Income from Fixed Deposits

Detailed Analysis:

1. Condonation of Delay in Filing Appeal
The court acknowledged a delay of 68 days in filing ITA No. 21 of 2017. After hearing the counsel for both parties, the application for condonation of delay (CLMA No. 11172 of 2017) was allowed, and the delay was condoned.

2. Deduction under Section 80-IC of the Income Tax Act, 1961
The primary issue in ITA No. 24 of 2015 was whether the interest income earned by the assessee on fixed deposits, which were maintained as a business requirement for securing a bank guarantee, could be deducted under Section 80-IC. The Assessing Officer initially allowed the deduction, but the Commissioner of Income Tax (CIT) initiated proceedings under Section 263, arguing that the interest income did not qualify for the deduction. The Tribunal upheld the CIT's decision, leading to the dismissal of the assessee's appeal.

3. Distinction between "Derived From" and "Attributable To" Income
The court emphasized the distinction between income "derived from" and income "attributable to" the business. Citing judgments from the Hon'ble Apex Court in Cambay Electrical Supply Co. Ltd. vs. Commissioner of Income Tax and Pandian Chemicals Ltd. vs. Commissioner of Income Tax, the court noted that Section 80-IC uses the term "derived from," which implies a narrower scope compared to "attributable to." The court found that the interest income did not have a direct and immediate nexus with the manufacturing activities of the assessee and thus did not qualify for the deduction under Section 80-IC.

4. Treatment of Interest Income from Fixed Deposits
The court examined several judgments cited by the appellant, including Commissioner of Income Tax vs. Karnal Co-operative Sugar Mills Ltd., Commissioner of Income Tax vs. Jaypee DSC Ventures Ltd., Commissioner of Income Tax vs ELTEK SGS (P) Ltd., and Commissioner of Income Tax vs. Jagdish Prasad M. Joshi. These cases were distinguished on the grounds that they either dealt with different sections of the Income Tax Act or involved different factual matrices. The court concluded that the interest income earned on fixed deposits, used to secure a bank guarantee, did not qualify as income "derived from" the business under Section 80-IC.

Conclusion:
The court upheld the decisions of the CIT and the Tribunal, stating that the interest income earned on fixed deposits did not qualify for deduction under Section 80-IC as it was not "derived from" the business of manufacturing electric meters. The appeals were consequently dismissed, and the question of law was answered against the assessee and in favor of the Revenue.