2013 (1) TMI 593 - HC - Income Tax

Rectification of order by Tribunal u/s 254(2) - Computation of deduction u/s 80HHC - Whether it is the net interest which has to be taken into account while computing deduction u/s 80HHC as per Explanation (baa) to Sec. 80HHC(4C) Revision application filed by assessee contended to work out deduction u/s 80HHC, 90% of receipt by way of interest had to be excluded from profits of business taking net interest income and not the gross interest receipts Held that - The effect of the same would be that it is the net interest which has to be taken into consideration while computing deduction u/s 80HHC as per Clause (baa) of the explanation to Section 80HHC. The order passed by the Tribunal in the miscellaneous application being in conformity with the order in case of ACG Associated Capsules Private Limited (2012 (2) TMI 101 - SUPREME COURT OF INDIA). In favour of assessee

Summary

Issues Involved:
1. Interpretation of Section 80HHC of the Income Tax Act, 1961 regarding deduction of interest income.
2. Application of the net interest concept in computing deduction under Section 80HHC.
3. Validity of the Tribunal's decision in allowing the miscellaneous application.

Interpretation of Section 80HHC:
The case involved a dispute regarding the interpretation of Section 80HHC of the Income Tax Act, 1961. The Assessing Officer had disallowed a deduction claimed under Section 80HHC, citing that interest received was not reduced from business profits as required by the provisions of the Act. The issue revolved around whether net interest should be considered for deduction under Section 80HHC. The Commissioner of Income Tax (Appeals) partly allowed the appeal, directing that interest should not be excluded from business profits. However, the Tribunal allowed the revenue's appeal, leading to a miscellaneous application by the assessee contending that net interest income should be considered for deduction. The Tribunal, in line with the Supreme Court's ruling in a similar case, allowed the application, emphasizing the importance of considering net interest for deduction under Section 80HHC.

Application of Net Interest Concept:
The crux of the matter was the application of the net interest concept in computing the deduction under Section 80HHC. The Tribunal initially held that 90% of interest receipts had to be excluded from business profits, irrespective of netting interest received and paid. However, the assessee's application argued for considering net interest income for deduction purposes. The Tribunal, in its final decision, aligned with the Supreme Court's stance that only net interest included in the profits of the business should be deducted under Section 80HHC. This interpretation emphasized the significance of calculating deduction based on net interest rather than gross interest receipts, as clarified by the Apex Court.

Validity of Tribunal's Decision:
The Tribunal's decision to allow the miscellaneous application filed by the assessee was pivotal in resolving the dispute. By aligning its judgment with the Supreme Court's ruling emphasizing the consideration of net interest for deduction under Section 80HHC, the Tribunal upheld the assessee's contention. Consequently, the substantial question of law was answered against the revenue and in favor of the assessee. The dismissal of both appeals signified the acceptance of the Tribunal's decision, highlighting the importance of consistent interpretation and application of legal provisions in tax matters.

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