2017 (12) TMI 129 - HC - Income Tax

Benefit of Section 80-IC - proof of income derived from business - income earned by way of interest - scope of the term business u/s 2(13) r.w.s 28(i) - Held that - Both in Sections 80HH and 80-IC, the Legislature has chosen to employ the word derived as distinguished from attributable to . Had the Legislature used the words attributable to , then it would have a much wider effect and it may have encompassed within itself, the income, which is the subject matter of controversy before us. But insofar as a narrow concept has been contemplated by the Legislature for the purpose of grant of benefit of deduction under Section 80-IC, we would think that with regard to the fact that interest, which is earned by the appellant, has nothing to do with carrying on of the business per se, namely, manufacture and sale of the articles in question, the appellant would not be entitled to the benefit of deduction. Undoubtedly, in Section 2 (13) of the Act, business is defined. A definition clause is, undoubtedly, to be considered when interpreting a Statute, but it is always subject to the context being otherwise. We may notice in this regard Section 28 of the Act, which provides for the income coming under the heading Profits and gains of business or profession . We may notice Section 28(i) of the Act, which provides as follows 28. Profits and gains of business of profession.-The following income shall be chargeable to income-tax under the head profits and gains of business or profession ,- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; Contrast the words used in Section 28 (i), it does not use the word derive ; it also does not specify any particular business as such. The entire income from trade and business would be reckoned under the heading business income . In other words, under Section 80-IC, a person, an enterprise or an undertaking is entitled to take the benefit of Section 80-IC only insofar as it carries on business, which is mentioned in sub-section (2) of Section 80-IC and derives profits and gains therefrom. - Decided against the assessee

Summary

Issues Involved:
1. Condonation of Delay in Filing Appeal
2. Deduction under Section 80-IC of the Income Tax Act, 1961
3. Distinction between "Derived From" and "Attributable To" Income
4. Treatment of Interest Income from Fixed Deposits

Detailed Analysis:

1. Condonation of Delay in Filing Appeal
The court acknowledged a delay of 68 days in filing ITA No. 21 of 2017. After hearing the counsel for both parties, the application for condonation of delay (CLMA No. 11172 of 2017) was allowed, and the delay was condoned.

2. Deduction under Section 80-IC of the Income Tax Act, 1961
The primary issue in ITA No. 24 of 2015 was whether the interest income earned by the assessee on fixed deposits, which were maintained as a business requirement for securing a bank guarantee, could be deducted under Section 80-IC. The Assessing Officer initially allowed the deduction, but the Commissioner of Income Tax (CIT) initiated proceedings under Section 263, arguing that the interest income did not qualify for the deduction. The Tribunal upheld the CIT's decision, leading to the dismissal of the assessee's appeal.

3. Distinction between "Derived From" and "Attributable To" Income
The court emphasized the distinction between income "derived from" and income "attributable to" the business. Citing judgments from the Hon'ble Apex Court in Cambay Electrical Supply Co. Ltd. vs. Commissioner of Income Tax and Pandian Chemicals Ltd. vs. Commissioner of Income Tax, the court noted that Section 80-IC uses the term "derived from," which implies a narrower scope compared to "attributable to." The court found that the interest income did not have a direct and immediate nexus with the manufacturing activities of the assessee and thus did not qualify for the deduction under Section 80-IC.

4. Treatment of Interest Income from Fixed Deposits
The court examined several judgments cited by the appellant, including Commissioner of Income Tax vs. Karnal Co-operative Sugar Mills Ltd., Commissioner of Income Tax vs. Jaypee DSC Ventures Ltd., Commissioner of Income Tax vs ELTEK SGS (P) Ltd., and Commissioner of Income Tax vs. Jagdish Prasad M. Joshi. These cases were distinguished on the grounds that they either dealt with different sections of the Income Tax Act or involved different factual matrices. The court concluded that the interest income earned on fixed deposits, used to secure a bank guarantee, did not qualify as income "derived from" the business under Section 80-IC.

Conclusion:
The court upheld the decisions of the CIT and the Tribunal, stating that the interest income earned on fixed deposits did not qualify for deduction under Section 80-IC as it was not "derived from" the business of manufacturing electric meters. The appeals were consequently dismissed, and the question of law was answered against the assessee and in favor of the Revenue.