TaxTMI 
TaxTMI 
2007 (9) TMI 223
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...." 2. The facts of the case lie in a narrow compass. 3. The assessee is an industrial undertaking engaged in conversion of coal tar into hard pitch anthrance oil etc. being the priority industry. The assessee filed its income-tax return claiming deduction under section 80-I at Rs. 4,38,161 for the assessment year 1989-90 and Rs. 4,32,042 for the assessment year 1990-91 being 25 per cent. of profit. The Assessing Officer by two separate assessment orders passed under section 143(3) of the Income-tax Act allowed the deductions at Rs. 4,69,876 and Rs. 4,33,474 for the assessment years 1989-90 and 1990-91 respectively. The Commissioner of Income-tax, Ranchi, initiated revision proceedings under section 263 of the Act and alleged that the said assessment orders passed by the Assessing Officer were erroneous and prejudicial to the interests of the Revenue because according to him the interest earned by the assessee for Rs. 2,15,432 (Rs. 58,766 interest on deposit in IDBI and Rs. 1,56,666 interest earned on bank FDR's) for the assessment year 1989-90 and Rs. 1,71,116 (Rs. 72,600 interest on deposit in IDBI and Rs. 98,516 interest earned on bank FDR's) for the assessment year 1990-91 ....
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....e interest income, which was generated from the fixed deposit in the bank and in IDBI, had a direct nexus with the business of the assessee and was a business income to be included in the profits and gains of the assessee. Learned counsel further submitted that the income earned by the assessee on the deposit with the bank and IDBI has a close nexus with the business of the assessee-company which is an industrial undertaking and, therefore, it is submitted that the interest generated from these deposits are the profits and gains from the business of the assessee and, therefore, he is entitled for allowance under section 80-I of the Act. 6. Learned counsel relied upon the decision of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 and the decision of the Bombay High Court in the case of CIT v. United Carbon India Ltd. [1991] 190 ITR 622. 7. Section 80-I of the Act was inserted by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. The scope of this section has been elaborated by the Departmental Circular No. 281, dated September 22, 1980 (see [1981] 131 ITR (St.) 4). This section was further amended by the Finance....
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....section 41(2), irrespective of its real character, has to be taken into account and included as income of the business. In other words, the balancing charge will have to be taken into account before computing the deduction of 8 per cent. under section 80E. 9. In the case of CIT v. Ahmedabad Electricity Co. Ltd. [1993] 203 ITR 521 (Bom), the facts of the case were that the assessee was engaged in the business of generation and distribution of electricity. In the assessment originally framed under section 143(3) of the Act, the Income-tax Officer had granted deduction under section 80-I of the Act in respect of the fixed deposit receipts. However, subsequently, the Income-tax Officer took action under section 147(b)/148 of the Act in view of the objection raised by the Revenue audit in respect of the aforesaid receipts whereby the deduction granted to the assessee under section 80-I of the Act was withdrawn and the matter was ultimately referred to the Bombay High Court for opinion on the following question (page 522) "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the following receipts of the assessee-company were profits an....
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....n of relief under section 80J of the Income-tax Act, 1961, under rule 19A(2), clauses (ii) and (iii) of the Income-tax Rules, 1962, for 1970-71 and 1971-72 assessment years ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to relief at 8% under section 80-I on the interest income of Rs. 7,07,390 for the assessment year 1971-72 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to relief under section 80J on the bank deposit of Rs. 1.40 crores which should be treated as capital employed in the industrial undertaking for the assessment year 1971-72 ?" 12. The Bombay High Court held (page 625) "The facts relevant for the purpose of the second question are that the amounts on which interest was earned by the assessee to the extent of Rs.7,07,390 represented the assessee's money required for its business. Since, however, the monies were not required immediately, the assessee made short-term deposits of these monies and earned interest thereon. The question that arose for the purpose of granting re....