2015 (9) TMI 665 - HC - Income Tax

Issue of interest income restored to the file of the A.O. by ITAT to exclude 90 % of net interest income - whether the receipt on account of electronic data processing and professional services is not income but in the nature of reimbursement of expenses. Therefore, no occasion to invoke clause (bba) of Explanation to 80HHC would arise? - Held that - We accept the revenue s contention that the receipts attributable to electronic data process and professional services would be in the nature of income. Therefore while answering Question in negative i.e. in favour of the appellant-revenue and against the respondent-assessee, the Assessing Officer while giving effect to this order, would examine whether or not, there is any income on net basis i.e. after reducing expenditure from gross receipts. It is only thereafter, if there is a positive income, the Assessing Officer would apply the provisions of clause (baa) of the Section 80HHC of the Act. - Decided against assessee.

Summary

Issues:
Challenge to the order dated 11 December 2006 passed by the Income Tax Appellate Tribunal (ITAT) under Section 160A of the Income Tax Act, 1961 for Assessment Year 1998-99.

Analysis:

1. Substantial Questions of Law:
The appeal was admitted based on various substantial questions of law, including the treatment of interest income, the classification of different types of interest, the exclusion of certain income for computing profits, and the applicability of specific provisions of the Income Tax Act.

2. Judicial Findings on Substantial Questions:
Questions I, II, V, VII, and VIII were found to be covered by a decision of the Apex Court, leading to a negative answer for Question I and affirmative answers for Questions II, V, VII, and VIII. These questions were concluded in favor of the respondent-assessee against the revenue.

3. Dismissal of Certain Questions:
Questions III and VI were dismissed as they did not arise from the impugned order of the Tribunal for the relevant assessment year, and were not pressed by the appellant.

4. Key Issue for Consideration - Question IV:
The primary issue considered was Question IV, focusing on whether receipts from electronic data processing and professional services should be treated as income or reimbursement of expenses, impacting the application of a specific provision of the Act.

5. Arguments and Decision on Question IV:
The Counsel for the respondent-assessee contended that even if the receipts were considered as income, following the Apex Court's decision, the net income might not result in a positive figure. However, it was acknowledged that the receipts should be treated as income, and the Assessing Officer would need to determine the net income before applying the relevant provision.

6. Final Disposition:
The appeal was disposed of with the decision in favor of the appellant-revenue and against the respondent-assessee on Question IV. The Assessing Officer was directed to examine the net income and apply the provisions of the Act accordingly. No costs were awarded in the case.

This detailed analysis of the judgment provides a comprehensive overview of the issues raised, the legal arguments presented, and the final decision rendered by the High Court.