2019 (2) TMI 1809 - HC - Income Tax

Deduction u/s 80-IA - interest income earned on the margin money deposit with the banks and the interest earned on short-term loans and advances in the form of interest received from customers on the belated payments of invoices raised by the assessee - HELD THAT - Interest income earned by the assessee in the ordinary course of business cannot be said to be excluded from the head Income from business or profession in Part D comprising of sections 28 to 44DB in Chapter IV which deals with computation of the total income in the heads of income as per section 14 of the Act. If by no stretch of imagination such interest income could be included under the head Profits and gains of business or profession only then it could fall in the residuary clause of income from other sources under section 56 of the Act and not otherwise. No occasion to artificially bifurcate and dissect the interest income earned by the assessee in the present case in its ordinary course of business so as to take it out of the ambit of deduction available to it under section 80-IA - The efforts on the part of the Revenue authorities to create such artificial compartments in the business income of the assessee merely to reduce the quantum of deduction available to the assessee under section 80-IA of the Act of which the eligibility of the assessee is not even in doubt is nothing but a whimsical and the arbitrary view of the Revenue authorities and the same is opposed to common sense and business prudence of a common businessman. Our view is fully supported by the judgments relied upon by the learned counsel for the assessee as quoted above whereas we find distinction of the facts in the case law relied upon by the Revenue and therefore we have no hesitation to hold that the interest income earned by the assessee on margin money deposits with the bank and interest on short-term loans and advances in the form of belated payments made by customers was very much profits and gains of the business of the assessee and therefore the assessee was entitled to deduction under section 80-IA of the Act in respect of such interest income also. Having in favour of the assessee we do not consider it even necessary to answer the question whether the reopening of the assessment to bring to tax such income under the head Income from other sources and denying deduction under section 80-IA. - Decided in favour of the assessee

Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income-tax Act.
2. Classification of interest income under the head "Income from other sources" versus "Profits and gains of business".
3. Eligibility for deduction under Section 80-IA of the Income-tax Act.
4. Treatment of interest income from margin money deposits and belated payments.
5. Reopening of assessment under Section 147.

Issue-wise Detailed Analysis:

1. Assumption of jurisdiction under Section 147:
The Tribunal upheld the Assessing Officer's jurisdiction under Section 147 for reopening the assessments. The court reframed the substantial question of law to focus on whether the Tribunal was justified in holding that the interest income should be taxed under "Income from other sources" rather than allowing deductions under Section 80-IA.

2. Classification of Interest Income:
The primary issue was whether the interest income earned by the assessee on margin money deposits with banks and from customers on belated payments should be classified under "Income from other sources" or "Profits and gains of business". The Revenue argued that such interest income was not directly earned from the manufacturing or industrial activity and should be taxed as "Income from other sources". The assessee contended that this interest income was part of the ordinary course of business and should be classified under "Profits and gains of business".

3. Eligibility for Deduction under Section 80-IA:
Section 80-IA provides for deductions in respect of profits and gains derived from industrial undertakings. The court noted that the eligibility for deduction under Section 80-IA was not disputed by the Revenue. The core issue was whether the interest income fell within the scope of "profits and gains of business" and thus eligible for deduction under Section 80-IA.

4. Treatment of Interest Income from Margin Money Deposits and Belated Payments:
The court analyzed various precedents and concluded that interest income earned in the ordinary course of business, including from margin money deposits and belated payments, should be considered as "profits and gains of business". The court emphasized that such income is integral to business operations and should not be artificially bifurcated to reduce the quantum of deductions under Section 80-IA.

5. Reopening of Assessment under Section 147:
The court found that since the interest income should be classified under "profits and gains of business", the reopening of the assessment to classify it under "Income from other sources" was unnecessary. The issue of reopening the assessment was deemed academic and not required to be answered.

Conclusion:
The court allowed the appeals of the assessee, holding that the interest income earned on margin money deposits and from customers on belated payments should be classified under "profits and gains of business". Consequently, the assessee was entitled to deductions under Section 80-IA for such interest income. The substantial question of law was answered in favor of the assessee and against the Revenue.

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