High Court Of Punjab & Haryana
CIT vs. Nahar Spinning Mills Ltd.
Section 80HHC, Expln. (BAA)
Asst. Year 1996-97
M.M. Kumar & Rajesh Bindal, JJ.
IT Appeal No. 427 of 2006
2nd May, 2007
Counsel Appeared :
Sanjiv Bansal, for the Appellant : Sanjay Bansal with Ms. Suman Dhiman, for the Respondent judgment
Rajesh Bindal, J. :
The Revenue has approached this Court by filing the present appeal against order dt. 24th Oct., 2005 passed by the Income-tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (for short ‘the Tribunal’), in M.A. No. 181/Chd/2005 in ITA No. 539/Chd/2000, for the asst. yr. 1996-97, raising the following substantial question of law : “Whether, on the facts and circumstances of the case, the Hon’ble Tribunal was right in law in directing not to reduce 10 per cent of the interest income from the profit of business for the purpose of computation under s. 80HHC of the IT Act.” Briefly, the facts are that the assessee in the present case is engaged in the business of manufacture of cotton, acrylic yarn and textile in hosiery. The return for the assessment year in question was filed on 2nd Dec., 1996 declaring its income at Rs. 16,00,37,520. The same was processed under s. 143(1)(a) of the IT Act, 1961 (for short ‘the Act’) on 19th March, 1997 accepting the returned income of the assessee. Thereafter, the case was taken up for scrutiny and proceedings under s. 143(2) of the Act were initiated. The statement of taxable income filed alongwith return revealed that the assessee had shown the interest income amount to Rs. 5,83,19,691 under the head ‘Income from other sources’. While computing the income under various heads, the income earned from interest was assessed under the head ‘Income from other sources’ and was not considered as part of the income of business and profession. Aggrieved against treating the income from interest under the head ‘Income from other sources’ for the purpose of computation of deduction under s. 80HHC of the Act, the assessee preferred an appeal praying for the addition of this income under the head ‘Income of business and profession’ and for recomputation of deduction. The claim to that extent made by the assessee was rejected by the Commissioner of Income-tax (Appeals) [for short, the CIT(A)] in appeal for the reason that same was never made even before the AO.
The assessee approached the Tribunal against the order passed by the CIT(A) raising the following grounds of appeal with regard to his claim for deduction under s. 80HHC of the Act on account of interest income : “1(a) That the learned CIT(A) erred in law and on facts in rejecting the claim of the appellant that interest income of Rs. 6,37,40,902 be assessed as business income and further erred in not increasing business income by Rs. 6,37,40,902 being amount of interest earned on FDRs for the purpose of computing deduction under s. 80HHC. Directions be given to assess the interest of Rs. 6,37,40,902 under the head ‘Business income’ and recomputed deduction under s. 80HHC of IT Act. Without prejudice and in alternative, learned CIT(A) erred in law and on facts in not giving directions that if interest income is assessed under the head ‘Other sources’ then interest paid Rs. 54,21,210 may be allowed as expenditure to earn interest of Rs. 6,37,40,902 and resulting thereby business income be enhanced by Rs. 54,21,210.”
4. The issue was dealt with by the Tribunal in para 4.5 of the order of the Tribunal in the following terms : “4.5
We have considered the submissions of both the parties carefully and gone through the material available on record. This issue had been adjudicated by this Bench of the Tribunal in assessee’s own case for asst. yr. 1992-93 vide order dt. 23rd April, 2004 and relevant findings had been given at para 7 which read as under : ‘7. The request of the assessee regarding exclusion of 10 per cent out of interest income and other income was considered by the Tribunal in assessee’s own case for asst. yr. 1994-95 in ITA No. 1050/Chd/1996 and it has been held that after amendment in s. 80HHC, the interest income to be reduced from the profits and gains of the business is to the extent of 90 per cent of the receipts. In other words, 10 per cent of the interest is not to be excluded from the profits determined by the assessee. It may be pertinent to mention that the issue relating to setting off of interest paid with the interest earned by the assessee has not been accepted by the Tribunal in asst. yr. 1994-95 by following the decision of the Hon’ble Jurisdictional High Court in the case of Rani Paliwal vs. CIT (2003) 185 CTR (P&H) 333. We, therefore, find no justification to interfere.’ In view of the above, we do not see any merit in this ground of assessee’s appeal.”
5. As the assessee found that the error was committed by the Tribunal in dismissing the ground of appeal, it moved an application for rectification, which was accepted by the Tribunal and the concluding para was replaced in following terms by the Tribunal vide order dt. 24th Oct., 2005 : “In view of the above, we direct the AO to allow the claim by considering the aforesaid order of the Tribunal dt. 23rd April, 2004 for the asst. yr. 1992-93 in assessee’s own case.”
6. From perusal of the order passed by the Tribunal, it is evident that the assessee did not raise any argument with regard to treating of income from interest, under the head ‘Income from business and profession’ as against the treatment thereof under the head ‘Income from other sources’ at the time of passing of assessment order, which was confirmed by the CIT(A) in appeal. All that he said was that the deduction therefrom should be only to the extent of 90 per cent. In other words, 10 per cent of the interest is not to be excluded from the profits. The question as to whether the income on account of interest being not part of the income from business, could still be the assessee can be permitted to retain 10 per cent thereof in the business income for the purpose of calculation under s. 80HHC of the Act was considered by this Court in a separate order passed today in IT Appeal No. 153 of 2004, CIT vs. Nahar Export Ltd. [reported at (2007) 213 CTR (P&H) 20—Ed.] and it was held therein as under : “Relevant cl. (baa) of the Explanation to s. 80HHC of the Act, which defines the term ‘profits and gains of business’ is extracted below : ‘(baa) ‘profits of the business’ means the profits of the business as computed under the head ‘Profits and gains of business or profession’ as reduced by— (1) ninety per cent of any sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India,’
A perusal of the above clause showed that deduction of 90 per cent of the receipts on various accounts including on account of interest is to be reduced, while computing profits and gains of business for the purpose of deduction under s. 80HHC of the Act, which are included in such profits and not otherwise. As is evident from the facts on record, that the interest income earned by the assessee, which was sought to be claimed by him to be dealt with as income from business or profession, was in fact assessed as income from other sources, which order was upheld in appeal by the CIT(A). Even though, in the ground, the assessee had raised the issue for consideration of the interest income as part of the profits of business but the issue was never argued. Once the conceded position on record is that the interest income earned by the assessee does not form part of income from business or profession, as computed at the time of assessment, there arises no question of deduction of 90 per cent thereof for the purpose of calculation of deductions under s. 80HHC of the Act. The question of deduction of 90 per cent of the income in terms of the cl. (baa) of the Act would arise only if the same forms a part or the income from the business or profession. Any enabling provision for deduction of a part thereof presupposes inclusion of the entire under that head without which the provision cannot be given effect to. The interest income cannot be given two different treatments i.e., while computing the income under various heads at the time of assessment and another by calculating the deduction under s. 80HHC of the Act. Similar question came up for consideration before this Court in IT Appeal No. 73 of 2005, CIT vs. Avery Cycle Industries Ltd., dt. 12th Sept., 2006 [reported at (2006) 206 CTR (P&H) 347—Ed.], wherein the Revenue raised the issue that the Tribunal had gone wrong in directing the AO to consider the interest income as part of business profit for computing deductions under s. 80HHC of the Act.
While considering the issue, this Court found that in fact while framing the assessment in Avery Cycle Industries Ltd.’s case (supra), the AO himself had considered the receipts on account of interest as part of the business income. Under those circumstances, it was held that once the AO himself had treated the interest income as part of the income from business there was no occasion to treat the same differently for the purpose of calculation of deductions under s. 80HHC of the Act. The relevant para from the judgment in Avery Cycle Industries Ltd.’s case (supra) is extracted below : ‘Once at the time of passing of the assessment order in computing the income from business or profession, the amount of receipt of interest, as mentioned above, has been shown and assessed as income from business or profession, there is no reason for reducing the same out of the income from business or profession for the purpose of calculation of deduction under s. 80HHC of the Act, as after including the same in the income from business or profession, the reduction, as envisaged under that provision, would be carried out. This is clear even from what the Tribunal has directed. Accordingly, we do not find any merit in this contention of the Revenue and hold that once the income is assessed as income from business or profession, the same has to be taken as such for the purpose of calculation of profits of the business in terms of cl. (baa) of s. 80HHC of the Act after reducing therefrom 90 per cent of the amount, so referred in the clause.’ In view of our above discussion, we find that the assessee having not raised any issue with regard to treatment of interest income under the head ‘Income from other sources’ and the same being not part of the business income, there was no occasion for deduction of 90 per cent thereof. If any income forms part of the business income then only the question of deduction of 90 per cent thereof would arise.”
7. For the reasons stated above, the question raised is answered in favour of the Revenue and against the assessee and it is held that Tribunal had gone wrong in directing not to reduce 10 per cent of the interest income from the profits and business for the purpose of computation of deduction under s. 80HHC of the Act when the interest income itself was not part of the income from business.
[Citation : 296 ITR 477]
