2009 (12) TMI 718 - AT - Income Tax

Summary

Issues involved:
The judgment involves issues related to the tax treatment of interest income earned from temporary surplus funds, reduction of claim under section 80HHB, consideration of deputation charges as business income, and deduction under section 80HHC.

Interest Income from Temporary Surplus Funds:
The Assessing Officer treated the interest income earned by the assessee from temporary surplus funds as income from other sources, not as business income. The learned Commissioner of Income-tax (Appeals) upheld this action, citing various decisions. However, the Tribunal considered the facts and relevant case laws, including decisions by the Bombay High Court, and held that the interest income was inextricably linked to the business activities of the assessee and thus assessable as business income.

Interest Income on Margin Money:
Regarding interest received on margin money in relation to foreign projects, the Tribunal referred to a decision by the Delhi High Court and concluded that the interest income was assessable as business income as it was linked to the execution of the foreign project. The Tribunal upheld that interest income on margin money was to be treated as business income.

Other Interest Income:
The Tribunal upheld the treatment of other interest income as income from other sources, as it was earned on bank fixed deposits, income tax refunds, and inter-corporate deposits not directly linked to the business activities of the assessee. The Tribunal partially allowed Ground No. 1 in this regard.

Reduction of Claim under Section 80HHB:
The assessee had claimed deduction under section 80HHB for interest received on bank deposits and margin money. The Assessing Officer denied this deduction, stating that the interest income was assessable as income from other sources and did not fall under the phrase "profits and gains derived from the business." The Tribunal referred to a Supreme Court decision and directed the Assessing Officer to exclude only the net interest income for the purpose of deduction under section 80HHB, as the interest income was held to be assessable as business income. Ground No. 2 was partially allowed in this regard.

Other Grounds:
The other grounds raised in the appeal were not pressed by the assessee and were dismissed as not pressed. The appeal filed by the assessee was partly allowed by the Tribunal.

This summary provides a detailed overview of the judgment, addressing each issue involved and the Tribunal's findings on each issue based on the arguments presented and relevant legal precedents.