2007 (5) TMI 139 - HC - Income Tax

Industrial undertaking - question arises (i) Whether assessee liable for deduction u/s 80-I in respect to the interest receive from bank (ii) Whether deduction u/s 80-I should be allowed without deducting the amount permissible u/s 32AB of the Act Held (i) no (ii) no

Summary

Issues:
1. Whether interest income from investment in banks can be treated as income derived from an industrial undertaking and entitled to deduction under section 80-I of the Income-tax Act.
2. Whether deduction under section 80-I should be allowed without deducting the amount permissible under section 32AB of the Act.

Analysis:

Issue 1:
The case revolves around the interpretation of section 80-I of the Income-tax Act, which allows a deduction if the income includes profits or gains derived from an industrial undertaking. The court emphasized that the purpose of this provision is to encourage the establishment and production in new industries. However, the deduction should not extend to income reinvested in non-industrial undertakings. The court examined conflicting decisions from the Calcutta High Court and the Nagpur Bench of the Bombay High Court. The court disagreed with the Nagpur decision, which incorrectly applied a previous case's reasoning. Furthermore, the court clarified that interest income can be considered "profits and gains of business" only if investing money and earning interest is the assessee's primary business activity. Ultimately, the court held that interest income from bank investments should not be treated as income derived from an industrial undertaking for the purpose of claiming a deduction under section 80-I.

Issue 2:
Regarding the second issue, the court considered whether the deduction under section 80-I should be allowed without deducting the amount permissible under section 32AB of the Act. The court analyzed the definition of "gross total income" in Chapter VI-A of the Income-tax Act and noted that it excludes deductions only under Chapter VI-A. The court referenced decisions from the Delhi High Court and the Orissa High Court on a similar matter. The Delhi High Court's decision supported the Department's contention that deductions under section 33B should be made first. In contrast, the Orissa High Court held that special deductions under section 80HH should be allowed before deducting investment allowances under section 32A. The court found the Delhi High Court's reasoning more persuasive and aligned with the clear language of the relevant sections. Consequently, the court ruled that the Income-tax Appellate Tribunal was not justified in directing the allowance of deduction under section 80-I without deducting the amount permissible under section 32AB of the Act.

In conclusion, the court provided detailed analyses and interpretations of the provisions under consideration, ultimately deciding against the assessee's claims in both issues and disposing of the reference accordingly.