2017 (7) TMI 733 - HC - Income Tax

Calculating deduction under Section 80-HHC(4A)- whether the Assessee is entitled to reduce interest paid by it from the interest received by it, while calculating deduction under Section 80-HHC(4A) read with Explanation (baa)- Held that - Subsequently, this Court has in its decision in Commissioner of Income Tax v. Shri Ram Honda Power Equip (2007 (1) TMI 86 - HIGH COURT, DELHI) inter alia held that the word interest in clause (baa) of Explanation to Section 80 HHC connotes net interest and not gross interest . Therefore in deducting such interest the Assessing Officer will take into account the net interest i.e. the gross interest as reduced by the expenditure incurred for earning such interest. - Decided in favour of the Assessee

Summary

Issues:
- Interpretation of Section 80-HHC(4A) of the Income Tax Act, 1961 regarding deduction calculation for interest received and paid by the Assessee.
- Whether the Assessing Officer's finding on the nature of interest income is necessary for determining net interest under Section 80-HHC.
- Applicability of the decision in Commissioner of Income Tax v. Shri Ram Honda Power Equip (2007) to the present case.

Analysis:
1. The appeals were filed against the ITAT's order for the AYs 1996-97 and 1997-98 concerning the deduction calculation under Section 80-HHC(4A) of the Income Tax Act, 1961.
2. The main question framed for consideration was whether the Assessee could reduce interest paid from interest received while calculating the deduction. The decision in Commissioner of Income Tax v. Shri Ram Honda Power Equip (2007) clarified that "interest" in this context refers to "net interest," not "gross interest."
3. The Court affirmed the decision of the Special Bench of the ITAT in Lalsons Enterprises v. Deputy CIT (2004) regarding the treatment of interest for deduction purposes.
4. The Revenue argued that without a categorical finding by the AO on the nature of interest income, the matter should be remanded for fresh determination. However, the Court noted that the Revenue did not challenge the nature of interest before the ITAT, leading to the dismissal of the request for remand.
5. The Court relied on the caveat in Commissioner of Income Tax v. Shri Ram Honda Power Equip (2007) that the holding on netting interest applies only when the AO specifically determines interest income as non-business income.
6. Since the Revenue did not contest the nature of interest income before the ITAT, the Court ruled in favor of the Assessee based on the decision in Commissioner of Income Tax v. Shri Ram Honda Power Equip (2007).
7. Consequently, the question framed was answered in favor of the Assessee, and the appeals were dismissed based on the established legal principles and lack of challenge by the Revenue on the nature of interest income during the proceedings.