2006 (11) TMI 151 - HC - Income Tax

Summary

Issues involved: Interpretation of deduction under section 80HHC and section 32AB of the Income-tax Act.

Interpretation of deduction under section 80HHC:
The appellant, a company engaged in the business of manufacturing and selling tea, claimed deduction under section 80HHC and section 32AB of the Income-tax Act for the assessment year 1990-91. The Assessing Officer disallowed the claim under section 80HHC based on the interpretation of rule 8(1). The appellant appealed to the Commissioner of Income-tax, who granted both reliefs. However, the Income-tax Appellate Tribunal allowed the appeal of the Income-tax Department, leading to the present appeal. The court framed the substantial question of law regarding the deduction under section 80HHC, which was answered based on a previous decision of the court in the case of Bazaloni Group Ltd. v. CIT [2005] 272 ITR 11.

Interpretation of deduction under section 32AB:
The appellant claimed deduction under section 32AB, but the Assessing Officer excluded interest income from the gross receipt, stating it was not a "business receipt." The appellate authority disagreed, stating that all incomes of the appellant arose from the business and should be included in the profits of the eligible business income under section 32AB. However, the Tribunal held that interest income and dividend income did not come from the profits of the business and therefore cannot be included for deduction under section 32AB. The court analyzed the definition of "eligible business or profession" under section 32AB and referred to the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 for guidance.

Conclusion:
The court examined the activities of the appellant company, including investment in shares, lending money for interest, and the tea business. The court found that these activities were interconnected and part of the same business, similar to the precedent set in Apollo Tyres case. Therefore, the court allowed the appeal, setting aside the Tribunal's order and answering both questions of law in favor of the appellant and against the Revenue.