2016 (9) TMI 1251 - HC - Income Tax

Deduction u/s 80 HHC - Interest received - nature of income - income from other sources v/s business income - Held that - From the record, as interest is not the business income, in that view of the matter, the discretion of the Division Bench which was sought by counsel for the appellant is not applicable to the facts of the present case. The appellant was not in position to establish that before AO or CIT (Appeals) or Tribunal he has attempted to show this as business income. Appellant has taken us through the finding recorded by AO and CIT (A) as well as oral and documentary evidence on record on the point of interest and business income. The income involved is not a business income, therefore, naturally they will not be entitled to benefit under Section 80HHC and view taken by the Tribunal is required to be upheld and for the same, the issue is answered in favour of Department and against the assessee.

Summary

Issues:
Challenge to ITAT's order dismissing the appeal and reversing CIT (Appeals) finding.
Interpretation of Section 80HHC of the Income Tax Act regarding interest income.
Determining whether interest income qualifies as business income for deduction under Section 80HHC.

Analysis:
1. The appellant contested the ITAT's decision dismissing the appeal and overturning the CIT (Appeals) finding. The key legal question revolved around the interpretation of Section 80HHC of the Income Tax Act concerning interest income. The appellant argued that the interest received should be considered income from business rather than other sources, citing a similar ruling in a previous year.

2. Referring to a Supreme Court decision in ACG Associated Capsules Pvt. Ltd. vs. CIT, the Court analyzed the definition of "profits of the business" under Section 80HHC. The Court highlighted that receipts of income chargeable under Section 28 must be included in the computation of business profits. It emphasized that only receipts actually included in business profits are subject to deduction under Section 80HHC.

3. The appellant relied on a Gujarat High Court judgment to support their claim that the interest income should be classified as business income. However, the department argued that the surplus funds did not constitute business income. The Court referenced a previous case where a similar deduction claim was denied, indicating a precedent against the appellant's position.

4. Ultimately, the Court ruled in favor of the revenue and against the assessee, emphasizing that the interest income in question did not qualify as business income. The appellant failed to establish that the interest income should be treated as business income before the tax authorities or the Tribunal. Consequently, the appellant was deemed ineligible for the deduction under Section 80HHC, and the Tribunal's decision was upheld in favor of the Department.

In conclusion, the judgment addressed the conflicting interpretations of Section 80HHC regarding interest income and business income classification, ultimately ruling against the appellant's claim for deduction under the Income Tax Act.