2012 (12) TMI 603 - HC - Income Tax

Deduction u/s 80IC - income derived from industrial undertaking - nature of interest income - held that - In Govinda Choudhury s case (1992 (4) TMI 8 - SUPREME COURT) the Hon ble Apex Court held that the interest awarded to the respondent-assessee therein in an arbitration proceeding for delayed payments under a contract executed by him was to be recorded as business income and could not be treated as income from other source . - Decided against the revenue.

Summary

Issues:
Challenge to the judgment of Income Tax Appellate Tribunal regarding the deductibility of interest income under section 80-IC of the Income Tax Act, 1961.

Comprehensive Analysis:

Issue 1: Deductibility of Interest Income under Section 80-IC

The appeal challenged the Income Tax Appellate Tribunal's finding on whether the interest income of Rs. 3,13,91,602/- was deductible under section 80-IC of the Income Tax Act, 1961. The respondent-assessee, a private limited company engaged in the manufacture and sales of PVC pipes, claimed the interest amount received from the Irrigation Department, Government of Assam, as business income eligible for deduction under section 80-IC. The Assessing Officer and Commissioner of Income Tax (Appeals) initially denied the deduction, citing impermissible timeframes and transactions. However, the Tribunal reversed this decision, emphasizing that the interest income was received during the assessment year 2004-05 and was related to the business undertaking, thus qualifying for the deduction under section 80-IC.

Issue 2: Legal Interpretation and Precedents

The Tribunal's decision was supported by the argument that no distinction was made in section 80-IC between income pre and post-expansion, making the interest income derived from the business undertaking eligible for deduction. The Court further noted that the Revenue failed to establish any legal provision or court decision contradicting the Tribunal's finding. Reference was made to the Supreme Court's ruling in CIT v. Govinda Choudhury, where interest awarded in an arbitration proceeding for delayed payments was considered business income, not "income from other sources." The Court highlighted that various High Courts had upheld similar views, reinforcing the eligibility of interest income as business income under section 80-IC.

Issue 3: Legal Arguments and Dismissal of Appeal

During the proceedings, the Revenue's counsel attempted to challenge the Tribunal's decision by invoking section 80HHC of the Act but failed to establish a nexus with section 80-IC. In contrast, the respondent's counsel relied on the Govinda Choudhury case and endorsed the Tribunal's reasoning. Ultimately, the Court, after considering all arguments and precedents, upheld the Tribunal's decision, emphasizing the lack of merit in the appeal. The Court dismissed the appeal, citing the interest income as derived from the business undertaking and eligible for deduction under section 80-IC, with no costs awarded.

This detailed analysis of the judgment showcases the legal interpretation, precedents, and arguments considered by the Court in determining the deductibility of interest income under section 80-IC of the Income Tax Act, 1961.