2018 (9) TMI 2021 - HC - Income Tax

Admit following substantial questions of law are framed. Whether the Income Tax Appellate Tribunal was right in holding that the interest income on special funds where the same has been taxed in the hands of the Society should not be taxed in the hands of the respondent-assessee? Whether the Income Tax Appellate Tribunal was right in deleting addition made by the Assessing Officer by applying Rule 8D(2)(ii) of the Income Tax Rules, 1962? No substantial question of law on the third aspect which relates to the provisions for retirement benefit of employees in view of the findings of the Commissioner of Income Tax (Appeals) which has been affirmed by the Income Tax Appellate Tribunal that the said provisions were based on acturial valuation and in accordance with AS15.

Summary

Issues:
1. Taxation of interest income on special funds.
2. Deletion of addition under Rule 8D(2)(ii) of the Income Tax Rules, 1962.
3. Provisions for retirement benefit of employees based on actuarial valuation.

Analysis:

1. Taxation of interest income on special funds:
The High Court examined whether the Income Tax Appellate Tribunal (ITAT) was correct in holding that interest income on special funds, already taxed in the hands of the Society, should not be taxed in the hands of the respondent-assessee. The Court framed this as a substantial question of law. The judgment did not incline to frame any substantial question of law on the third aspect related to the provisions for retirement benefits, as the Commissioner of Income Tax (Appeals) and ITAT had found the provisions to be in compliance with AS15 and based on actuarial valuation.

2. Deletion of addition under Rule 8D(2)(ii) of the Income Tax Rules, 1962:
Another issue addressed by the High Court was whether the ITAT was correct in deleting the addition made by the Assessing Officer under Rule 8D(2)(ii) of the Income Tax Rules, 1962. The Court framed this as the second substantial question of law. The judgment highlighted the decision of the ITAT in this regard, indicating a detailed examination of the application of Rule 8D(2)(ii) and the reasoning behind the deletion of the addition.

3. Provisions for retirement benefit of employees based on actuarial valuation:
The judgment clarified that no substantial question of law was framed on the aspect of provisions for retirement benefits of employees. This decision was based on the findings of the Commissioner of Income Tax (Appeals) and ITAT, which confirmed that the provisions were in line with actuarial valuation and AS15. The Court did not delve into this aspect further, as it was satisfied with the existing findings and compliance with relevant regulations.

In conclusion, the High Court's judgment addressed the issues of taxation of interest income on special funds and the deletion of addition under Rule 8D(2)(ii) of the Income Tax Rules, 1962. It provided detailed analysis and reasoning for each issue while refraining from further examination of the provisions for retirement benefits based on the existing findings and compliance with AS15.