2013 (12) TMI 839 - HC - Income Tax

Reducing eligible business profit while granting deduction under Section 80HHC by gross interest income as against net interest - Held that - for the purpose of deduction under Section 80HHC of the Income Tax Act net interest is to be excluded. In the present case while passing the impugned judgment and order the ITAT has held that for the purpose of claiming deduction under Section 80HHC of the Income Tax Act the gross interest is to be excluded. The aforesaid cannot be sustained in view of the decision of the Hon ble Supreme Court in the case of ACG Associated Capsules PVT. LTD (2012 (2) TMI 101 - SUPREME COURT OF INDIA) - Decided in favor of assessee.

Summary

Issues:
1. Interpretation of Section 80HHC for deduction of interest income in business profit.

Analysis:
The judgment involves the interpretation of Section 80HHC of the Income Tax Act regarding the deduction of interest income in business profit for the Assessment Year 2003-04. The assessee had claimed the deduction under Section 80HHC for interest income, which was disallowed by the Assessing Officer. The CIT(A) later deleted the disallowance under Section 80HHC. However, on appeal by the revenue before the ITAT, it was held that the assessee cannot claim the deduction under Section 80HHC for interest income that does not form part of the business income. The ITAT further ruled that the CIT(A) was not justified in netting off such interest income against interest expenditure and that 90% of the net interest income should be excluded for computing the deduction under Section 80HHC.

The key question before the High Court was whether the ITAT was correct in reducing the eligible business profit for the deduction under Section 80HHC by the gross interest income instead of the net interest income. The appellant argued that the Supreme Court's decision in ACG Associated Capsules PVT. LTD case held that net interest income should be excluded for the purpose of deduction under Section 80HHC. The appellant contended that the ITAT's decision to exclude gross interest income was incorrect.

The High Court, after considering the arguments presented by both parties, referred to the decision of the Delhi High Court in the case of Commissioner of Income-Tax Vs. Shri Ram Honda Power Equip, which was approved by the Supreme Court in the ACG Associated Capsules PVT. LTD case. The High Court held that for the purpose of deduction under Section 80HHC, net interest income should be excluded, as per the Supreme Court's ruling. Therefore, the High Court ruled in favor of the assessee, quashed the ITAT's judgment, and allowed the Tax Appeal. No costs were awarded in this case.