2013 (1) TMI 178 - HC - Income Tax

Deduction u/s 80-IB Whether the assessee is entitled to deduction u/s 80IB on interest earned by him on FDRs kept as guarantee with Electricity Department and the Bank for securing bank limits - Interest earned on Fixed deposit (FDR) - Business income of an Industrial Undertaking or Income from other sources - Profits and gains derived from such industrial undertakings or profits and gains derived from any business Held that - No, interest income on FDRs declaring it as income from the business of the industrial undertaking, cannot be said to be an income flowing from the business activity of industrial Undertaking, thus, cannot be computed for deduction u/s 80-IB. Section 80-IB(4) would reveal that reference made to profits and gains derived from such industrial undertakings and not to profit and gains derived from any business of the industrial undertaking . A conjoint reading of Section 80-IB(l) and 80-IB(4) would reveal that the expression profits and gains derived from any business is to be read as profits and gains derived from the industrial undertaking and the scope and ambit of Section 80-IB(1) is not in any manner wider than that of 80-IB(4). A holistic view of Section 80-IB would reveal that what is intended by the Law Makers to qualify for deduction is profits and gains derived from the industrial undertaking . There is, therefore, no reason to bring within the fold of profits and gains derived from industrial undertakings any income beyond the activities of the industrial undertakings on the ground that the words any business finds expression in 80-IB(l). In favour of revenue Whether interest income allowed to set off against the interest paid Held that - Following the decision in case of Dr. V. P. Gopinathan (2001 (2) TMI 10 - SUPREME COURT) that the interest paid by the assessee as interest on overdraft facility cannot be set off against the interest received on the FDRs pledged by him with the Bank so as to avail any deduction under the head Income from other sources . Hence set off not allowed. In favour of revenue

Issues Involved:
1. Deduction under Section 80-IB on interest earned on FDRs.
2. Interest earned on FDRs pledged as security with departments.
3. Netting of interest earned on FDRs against interest paid on bank overdraft.
4. Applicability of Supreme Court judgments regarding interest income eligibility for deduction under Section 80-IB.

Issue-wise Detailed Analysis:

1. Deduction under Section 80-IB on interest earned on FDRs:
The primary issue was whether the interest earned on Fixed Deposit Receipts (FDRs) kept as a guarantee with the Electricity Department and the Banks for securing credit facilities qualifies for deduction under Section 80-IB of the Income-tax Act, 1961. The Assessee argued that this interest should be considered part of the business income of an industrial undertaking and thus eligible for deduction. However, the Assessing Officer (A.O.), CIT(A), and ITAT all disallowed the deduction, treating the interest as 'Income from other sources'. The court held that the interest income on FDRs does not flow directly from the business activity of the industrial undertaking and thus cannot be computed for deduction under Section 80-IB.

2. Interest earned on FDRs pledged as security with departments:
The Assessee contended that the interest earned on FDRs pledged as security with the P.D.D. Department and Sales Tax Department for securing electric connection and sales tax registration had a direct and proximate connection with the business of the industrial undertaking, making it eligible for deduction under Section 80-IB. The court, however, upheld the findings of CIT(A) and ITAT, which relied on the Supreme Court's judgment in Pandian Chemicals Ltd. v. CIT, stating that the interest derived from deposits made with the Electricity Board cannot be said to flow directly from the industrial undertaking itself.

3. Netting of interest earned on FDRs against interest paid on bank overdraft:
The Assessee argued that even if the deduction under Section 80-IB on interest earned on FDRs pledged for overdraft is not allowable, the netting of interest earned against interest paid in bank overdraft should be permitted. The court rejected this argument, referencing the Supreme Court's decision in CIT v. Dr. V.P. Gopinathan, which stated that the interest paid by the Assessee as interest on overdraft facility cannot be set off against the interest received on the FDRs pledged with the Bank.

4. Applicability of Supreme Court judgments regarding interest income eligibility for deduction under Section 80-IB:
The Assessee cited the judgment in CIT v. Eltek SGS (P.) Ltd. to support their claim, arguing that the language in Section 80-IB, which refers to 'profits and gains derived from any business of Industrial Undertaking', should be interpreted broadly. However, the court noted that a conjoint reading of Section 80-IB(1) and 80-IB(4) reveals that the deduction is meant for 'profits and gains derived from the industrial undertaking'. The court further emphasized that the expression 'profits and gains derived from any business' should be read as 'profits and gains derived from the industrial undertaking', aligning with the narrower interpretation established in previous Supreme Court judgments, including Pandian Chemicals Ltd. v. CIT and Cambay Electric Supply Industrial Co. Ltd. v. CIT.

Conclusion:
The court concluded that no substantial question of law arises for consideration in these appeals, and thus, both appeals filed by the Assessee were dismissed.

← Previous Next →