2007 (4) TMI 295 - AT - Income Tax

Tribunal Decision: Partial Victory for Department, Section 80HHC Ruling on Interest Income, Excise Duty, and Exempt Units.

Assistant Commissioner Of Income-tax, Ludhiana. Versus Mahavir Spinning Mills Limited.

Assistant Commissioner Of Income-tax, Ludhiana. Versus Mahavir Spinning Mills Limited. - ITD 110, 211, TTJ 112, 966, Issues Involved:1. Computation of deduction under Section 80HHC with respect to interest income.2. Inclusion of excise duty and sales tax in the total turnover for deduction under Section 80HHC.3. Inclusion of turnover from units exempt under Section 10B in the total turnover for deduction under Section 80HHC.Issue-wise Detailed Analysis:1. Computation of Deduction under Section 80HHC with Respect to Interest Income:The assessee contested the CIT(A)'s decision to reduce 90% of interest income from the profits of the business for deduction under Section 80HHC, arguing that the interest received from customers on delayed payments and from suppliers on advance payments should be considered part of the business income. The Tribunal referenced the judgment in CIT Ludhiana v. Malwa Cotton Spinning Mills Ltd., which held that interest income, regardless of its source, retains its character as interest and must be reduced by 90% from the business profits for the purpose of Section 80HHC. Consequently, the Tribunal decided against the assessee and in favor of the department.2. Inclusion of Excise Duty and Sales Tax in the Total Turnover for Deduction under Section 80HHC:The assessee argued that excise duty and sales tax should be excluded from the total turnover for the purpose of computing the deduction under Section 80HHC. The Tribunal noted that the issue was covered by the judgment in CIT v. Vardhman Polytex Ltd., which held that excise duty and sales tax should not be included in the total turnover for the purpose of Section 80HHC. The Tribunal, therefore, decided in favor of the assessee and against the department on this issue.3. Inclusion of Turnover from Units Exempt under Section 10B in the Total Turnover for Deduction under Section 80HHC:The assessee claimed deduction under Section 80HHC for the export turnover of units exempt under Section 10B. The Assessing Officer rejected this claim, arguing that allowing such a deduction would result in a double benefit. The CIT(A) disagreed, stating that Sections 10B and 80HHC provide different benefits and that there is no restriction in the Act preventing the inclusion of turnover from Section 10B units in the total turnover for Section 80HHC. The Tribunal, however, sided with the Assessing Officer, referencing the principle that a statute should be construed to avoid double benefits and that turnover related to profits exempt under Section 10B should not be included in the total turnover for Section 80HHC. The Tribunal set aside the CIT(A)'s order and restored the Assessing Officer's decision.Conclusion:The Tribunal's final decision resulted in a partial allowance of the department's appeal. The key rulings were:- The reduction of 90% of interest income from business profits for Section 80HHC was upheld.- Excise duty and sales tax were excluded from the total turnover for Section 80HHC.- Turnover from units exempt under Section 10B was excluded from the total turnover for Section 80HHC.