TaxTMI 
TaxTMI 
2007 (4) TMI 211
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....as deduction while computing the income from business solely because of the provision in section 37(4A) of the Income-tax Act, 1961? (II) Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal is right in disallowing the relief under section 80HH of the Act on the whole of interest receipts of Rs. 3,11,86,442 without setting off the interest payments of Rs. 2,35,38,917?" In so far as the first question of law is concerned, it is seen from the order of the Income-tax Appellate Tribunal that the same relates to the claim for deduction of expenditure made by the assessee towards salary and wages of guest house staff and depreciation of guest house and the claim for the same to be admissible under sections 28 to 32 of the Income-tax Act. The assessee claims that the restriction provided for in the residuary section 37 of the Act should not be applied to such expenses. The assessee also claims that section 37(4) of the Act overrides the general provisions contained under sections 27 to 32 of the Act and accordingly claims that guest house expenses, wages and salary as well as depreciation of the guest house are to be allowed. The T....
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....gainst the aforesaid earning of interest, it had also incurred expenses amounting to Rs. 2,35,38,917 as interest paid on borrowed funds. Therefore, he submits that in effect the earning from interest is Rs. 76,47,525 (Rs. 3,11,86,442 - Rs. 2,35,38,917). In this respect, Shri Ratho submitted that the interest earning ought to qualify for relief under section 80HH of the Act, since such earning arose out of borrowed funds of the assessee, which were not immediately required for earning some interest and accordingly, he submitted that such interest earned under items Nos. 1, 2 and 4 ought to be classified as such. In so far as interest earned from delayed payment by customers is concerned, i.e., item No. 3, Shri Ratho submitted that the same was earned by the assessee from customers who chose to delay in making payment for purchases, and since the assessee in this case was carrying on an ongoing business of "manufacture" during the previous year, the present case was a case where the assessee had earned income after its business had actually commenced. Therefore, Shri Ratho, reiterated that the assessee had no other business except the business of manufacture and sale of sponge iro....
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....d. [2002] 257 ITR 60. He submitted that the aforesaid decision has already been followed by a later decision of the Madras High Court in the case of CIT v. Indo Matsushita Carbon Co. Ltd. [2006] 286 ITR 201. Learned counsel for the appellant also placed reliance on a judgment in the case of Nirma Industries Ltd. v. Deputy CIT [2006] 283 ITR 402 (Guj), the relevant portion of which is quoted hereinbelow: "The purchaser pays a higher sale price if it delays payment of the sale proceeds....The distinction drawn by the Revenue is artificial in nature and is neither in consonance with law nor commercial practice." "The Tribunal has failed to appreciate that it is not the case of the Assessing Officer that the interest income is not assessable under the head 'Profits and gains of business'. It is only while computing relief that the Revenue changes its stand ....... therefore, on this limited count alone, the order of the Tribunal suffers from a basic fallacy resulting in an error in law and on facts." Shri Ratho thereafter dealt with the three other heads under which interest has been earned by the assessee, i.e., interest from bank deposits, interest on intercorporate depos....
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....nd sought to limit the benefits available to the assessee under section 80HHC, on the other hand, by omission, the Legislature, in fact, reiterated the wider benefits which intended to vest in the assessee claiming benefits under section 80HH. Shri Ratho, in essence submitted that section 80HH and the legislative intent behind it must be given a wider amplitude and that the present assessee who claims relief under section 80HH should be entertained and considered favourably. In this respect, Shri Ratho placed reliance on a judgment of this court in the case of Tata Sponge Iron Ltd. v. State of Orissa, (OJC No. 2213 of 2001, disposed of on August 9, 2006) (unreported till date) wherein this court while considering whether a time-limit can be read into the Industrial Policy Resolution, when it did not explicitly contain any time limit. After considering all the aspects of the issue as well as several decisions of the Supreme Court, came to hold as follows: "It is well-settled law that the duty of the judicature is to act upon the true intention of the Legislature. In other words, if a provision is open to more than one interpretation, the court has to choose that interpretation....
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....d have been shown either in income or expenditure heading. He submitted that in the present case if the first contention fails, then since the assessee has paid interest on borrowed funds of Rs. 2,35,38,017 and has earned interest of Rs. 2,12,44,107, after setting off the interest expenditure from the interest income, the only net amount of interest, if any, may be denied exemption and not the total interest income earned. In this respect, Mr. Ratho placed reliance on a decision of the apex court in the case of Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1 to the following effect: "If, instead of the transaction being reflected in two separate or distinct accounts in the books of the partnership, they were in one account. . . partake of the same character." Drawing an analogy from the aforesaid judgment, Shri Ratho submitted that both, the interest earned and interest paid partake of the same character, since they are only referable from the said borrowed funds utilized for the purpose of efficient conduct of the business of the assessee. At the conclusion, learned counsel for the appellant submitted that the learned Income-tax Appellate Tribunal has misconceived the case of....
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....tax Appellate Tribunal in the impugned order vide annexure-4. To sum up, Mr. Mohapatra submitted that none of the four heads of interest income indicated by the appellant can be claimed for relief under section 80HH since such income does not bear any "direct or immediate nexus" with the appellant's industrial undertaking and as such, the income is from an activity of the appellant which is a step removed from the business of the industrial undertaking and that the earning of interest in the present case cannot be said to flow directly from the industrial undertaking of the assessee. Shri Mohapatra, relying upon the judgment in the case of Pandian Chemicals stated that no legislative intent could be inferred from the amendment of section 80HHC and the non-amendment to section 80HH, since it is well-settled that the rules of interpretation would come to play only if there is any doubt with regard to the express language used. Where the words are unequivocal, there is no scope for importing the rule of liberal interpretation, as submitted by the appellant. He, accordingly, submitted that the judgment of the apex court in the case of Pandian Chemicals fully substantiates and sup....
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....Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, the relevant portion is quoted hereinbelow: "In this connection, it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression 'derived from', as, for instance, in section 80J. In our view, since the expression of wider import, namely, 'attributable to', has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." The hon'ble Supreme Court also took note of the judgment of the Privy Council in the case of CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325 to the following effect: "The word 'derived' is not a term of art. Its use in the definition indeed demands an enquiry into the genealogy of the product. But the enquiry should stop as soon as the effective source is discovered. In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of non-payment. And rent is not land within the meaning of the defi....