Punjab & Haryana H.C : Whether on facts and the circumstances of the case, the Tribunal was correct in law in directing the AO to allow netting in interest for computing deduction under s. 80HHC of IT Act ?

High Court Of Punjab & Haryana

CIT vs. Liberty Footwear Company

Section 80HHC, Expln. (BAA)

Asst. Year 1992-93

Adarsh Kumar Goel & Rajesh Bindal, JJ.

IT Appeal No. 32 of 2005

27th July, 2006

Counsel Appeared

S.K. Garg Narwana, for the Appellant : None, for the Respondent

JUDGMENT

Rajesh Bindal, J. :

This is an appeal by the Revenue against orders dt. 23rd April, 2004, passed by the Income-tax Appellate Tribunal, New Delhi (for short, ‘the Tribunal’) in MA No. 165/Del/2003 in ITA No. 5317/Del/1994, for the asst. yr. 1992-93, raising the following substantial question of law : “Whether on facts and the circumstances of the case, the Tribunal was correct in law in directing the AO to allow netting in interest for computing deduction under s. 80HHC of IT Act ?”

Notice in this case was issued on 18th July, 2005 and the service was effected for 7th Nov., 2005. However, none has put in appearance on behalf of the respondent.

We have proceeded to decide the case on merits for determination of the abovereferred substantial question of law because, in our opinion, the same does arise in the appeal and further that this Court had already opined on the issue in Rani Paliwal vs. CIT (2003) 185 CTR (P&H) 333 : (2004) 268 ITR 220 (P&H) against the assessee.

We have heard learned counsel for the Revenue. The short issue is as to whether in terms of Expln. (baa) to sub-s. (4C) of s. 80HHC of the IT Act, 1961 (for short, ‘the Act’), 90 per cent of the gross interest received is to be reduced out of the profit of business or the net interest.

The relevant Explanation is extracted below : “Explanation.—For the purposes of this section,— (a) to (ba) xxxxx (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;”

The words used in Expln. (baa) to sub-s. (4C) of s. 80HHC of the Act are “receipts by way of interest”. A plain reading thereof shows that it is the amount of interest which is shown by the assessee in receipt side. It does not in any way provide for netting of interest by reducing the interest paid by the assessee from the interest received by it for the purpose of calculation under the above provision.

7. Earlier also, this Court, while rejecting an appeal filed by the assessee, against the order of the Revenue in the case of Rani Paliwal (supra), held that it is the gross interest which is to be taken into consideration for reduction of 90 per cent thereof for arriving at profit of the business, in terms of Expln. (baa) to sub-s. (4C) of s. 80HHC of the Act. Though, in Rani Paliwal’s case (supra), the Tribunal had decided the issue against the assessee, but still in

the present case it was decided in favour of the assessee. Even an application filed by the Revenue for rectification was also rejected by the Tribunal vide order dt. 23rd April, 2004 by referring to a Special Bench decision of the Tribunal even though the judgment of this Court in Rani Paliwal’s case (supra) was already there on the issue. Reliance on an order passed by the Tribunal, where the issue is covered by a judgment of this Court, cannot be appreciated. The Tribunal in its order has not even referred to the judgment of this Court.

In view of our above discussions and earlier view of this Court in Rani Paliwal’s case (supra), the present appeal is accepted and it is held that it is gross interest received by the assessee, which is to be considered in terms of Expln. (baa) to s. 80HHC of the Act and not net interest for the purpose of arriving at profits of the business. Accordingly, the appeal is allowed in the manner indicated above and the order of the Tribunal is set aside.

[Citation : 287 ITR 339]

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