2010 (4) TMI 664 - HC - Income Tax

Business income Cessation of liability condition precedent for application of section 41 Mere change in name in books of accounts No actual extinguishment of liability Amount not taxable under section 41

Summary

Issues:
1. Eligibility of deductions under section 80-IB for interest on deposits and miscellaneous income.
2. Exclusion of certain receipts from profits under section 80HHC.

Analysis:

Issue 1:
The appeal before the Bombay High Court under section 260A of the Income-tax Act, 1961 pertained to the eligibility of deductions under section 80-IB for interest on deposits and miscellaneous income. The court considered whether these receipts, despite lacking a direct nexus to the business of industrial undertaking, could be claimed as deductions under section 80-IB. The court referred to the decision in Liberty India v. CIT [2009] 317 ITR 218, where it was held that interest on deposits would not be allowable towards the deduction under section 80-IB. Consequently, the court ruled against the assessee and in favor of the Revenue regarding interest on deposits. However, the issue of miscellaneous income (reversal of LD charges) was agreed by both counsels to be remanded back to the Tribunal for fresh consideration in light of the judgment in Liberty India [2009] 317 ITR 218.

Issue 2:
The second question involved the exclusion of 90 per cent. of receipts from freight and insurance, packing charges, sales tax set off, and gross service income from the profits of the business under Explanation (baa) to section 80HHC of the Act. The court noted that this issue was similar to a previous decision in CIT v. Dresser Rand India Pvt. Ltd. (ITA No. 2186 of 2009) [2010] 323 ITR 429 (Bom), where the court had ruled in favor of the Revenue. Both counsels agreed that this question stood covered against the assessee and in favor of the Revenue. Therefore, the court answered this question in favor of the Revenue and against the assessee.

In conclusion, the appeal was allowed in favor of the Revenue on the second question regarding the exclusion of certain receipts from profits under section 80HHC. However, on the first question concerning deductions under section 80-IB for interest on deposits and miscellaneous income, the court ruled against the assessee for interest on deposits based on the decision in Liberty India [2009] 317 ITR 218 and remanded the issue of miscellaneous income for fresh consideration by the Tribunal. No costs were awarded in the judgment.